Exchange Asymmetries Incorrectly Interpreted as Evidence of Endowment Effect Theory and Prospect Theory?
19 Pages Posted: 18 Oct 2015
Date Written: September 1, 2007
Many have advanced observed exchange asymmetries as support for endowment effect theory and underlying prospect theory. These are very general theories about the nature of preferences, which, if accepted, have implications for applied economics in complex field settings. While we do challenge the general accuracy of endowment effect theory, we do not challenge prospect theory, which has been explored in different experiments. More specifically, we challenge the interpretation of exchange asymmetries as providing empirical support for either endowment effect theory or prospect theory. The experiments we report, along with those reported by others, suggest that classical preference theories influencing choices through procedures used in the experiments account for the patterns of observed choices.
Keywords: Exchange Asymmetries, Endowment Effect, Prospect Theory, Empirical Legal Studies, Valuation Gaps, Reluctance to Trade
JEL Classification: B41, C90, K00
Suggested Citation: Suggested Citation