Exchange Asymmetries Incorrectly Interpreted as Evidence of Endowment Effect Theory and Prospect Theory?

19 Pages Posted: 18 Oct 2015

See all articles by Charles R. Plott

Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences

Kathryn Zeiler

Boston University - School of Law

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2007

Abstract

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

Plott, Charles R. and Zeiler, Kathryn, Exchange Asymmetries Incorrectly Interpreted as Evidence of Endowment Effect Theory and Prospect Theory? (September 1, 2007). American Economic Review, Vol. 97, No. 4, 2007, Boston Univ. School of Law, Law and Economics Research Paper No. 15-38, Available at SSRN: https://ssrn.com/abstract=2675218

Charles R. Plott

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
337 Baxter Hall
Pasadena, CA 91125
United States
626-395-4209 (Phone)

Kathryn Zeiler (Contact Author)

Boston University - School of Law ( email )

765 Commonwealth Avenue
Boston, MA 02215
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
75
Abstract Views
758
rank
32,202
PlumX Metrics