Is the Endowment Effect a Reference Effect?
This paper is aimed to assess, with two lab experiments, to what extent Kőszegi and Rabin's (2006) model of expectations-based reference-dependent preferences can explain Knetsch's (1989) endowment effect. Departing from past work, we design an experiment that treats the two goods (a mug and a pen) symmetrically in all but in the probabilities with which they are expected to be owned. Thus, our "endowmentless" endowment effect experiment shuts down all alternative mechanisms while leaving expectations the only difference between treatments. We find no evidence that expectations alone can reproduce any of the original effect.
Corresponding author: Ori Heffetz. We thank Daniel Benjamin, Daniel Kahneman, Botond Koszegi, Ted O'Donoghue, and Matthew Rabin for helpful discussions; seminar participants at Cornell, the ESA North American Meetings, Hebrew University, UCSD, and University of Pittsburgh for useful comments; and Sean Garborg for excellent research assistance. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
IS THE ENDOWMENT EFFECT AN EXPECTATIONS EFFECT? Ori Heffetz1 andJohn A. List2 Article first published online: 20 MAY 2014 DOI: 10.1111/jeea.12084 © 2014 by the European Economic Association Issue Journal of the European Economic Association Journal of the European Economic Association Volume 12, Issue 5, pages 1396–1422, October 2014