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Endowment Effect (endowment + effect)
Selected AbstractsWelfare Economics with Intransitive Revealed Preferences: A Theory of the Endowment EffectJOURNAL OF PUBLIC ECONOMIC THEORY, Issue 2 2006H. LORNE CARMICHAEL Economists use the standard rational model to predict behavior after a policy change and to determine the policy's welfare implications. Recent experimental observations are casting doubt on the predictive accuracy of the standard model, but the more realistic behavioral alternatives often provide a poor basis for making normative evaluations. This paper suggests that we can still predict behavior and measure welfare within the same model. We show that optimizing agents with standard preferences will in some cases behave as if they are subject to an endowment effect. Even so, we may still be able to uncover information about their preferences. [source] How beliefs influence the relative magnitude of pleasure and painJOURNAL OF BEHAVIORAL DECISION MAKING, Issue 4 2010Barbara A. Mellers Abstract Loss aversion is an economic assumption about utility,people value giving up a good more than they value getting it. It also has hedonic meaning,the pain of a loss is greater in magnitude than the pleasure of a comparable gain. But value and pleasure are not necessarily identical. We test the hedonic interpretation of loss aversion in experimental markets. With hedonic forecasts, sellers imagine the pain of losing their endowment, and buyers imagine the pleasure of being endowed. With hedonic experiences, sellers rate the pleasure of having the endowment, and buyers rate the pain of being without it. Contrary to loss aversion, predicted pleasure is greater in magnitude than predicted pain, and experienced pleasure surpasses experienced pain. We show that the relative magnitude of pleasure and pain depends on beliefs about the likelihood of outcomes, as well as utilities. Surprise makes gains more pleasurable and losses more painful. With surprising gains and expected losses, pleasure can surpass pain. But when gains and losses are equally likely (or losses are surprising and gains are expected), the opposite pattern can occur. Finally, within-group and between-group prices are significantly correlated with hedonic experiences. Sellers who feel better with their endowments assign higher selling prices, and buyers who feel worse about the absence of endowment assign higher buying prices. Despite the fact that hedonic experiences deviate from loss aversion, these emotions predict the endowment effect. Copyright © 2009 John Wiley & Sons, Ltd. [source] Welfare Economics with Intransitive Revealed Preferences: A Theory of the Endowment EffectJOURNAL OF PUBLIC ECONOMIC THEORY, Issue 2 2006H. LORNE CARMICHAEL Economists use the standard rational model to predict behavior after a policy change and to determine the policy's welfare implications. Recent experimental observations are casting doubt on the predictive accuracy of the standard model, but the more realistic behavioral alternatives often provide a poor basis for making normative evaluations. This paper suggests that we can still predict behavior and measure welfare within the same model. We show that optimizing agents with standard preferences will in some cases behave as if they are subject to an endowment effect. Even so, we may still be able to uncover information about their preferences. [source] The Uniqueness of Nonprofit Finance and the Decision to BorrowNONPROFIT MANAGEMENT & LEADERSHIP, Issue 3 2002Woods Bowman Previous studies of nonprofit capital structure (borrowing relative to assets) support contradictory decision models of borrowing, but with no control for an endowment effect, which this article shows to be an important factor in the decision to borrow. Well-endowed nonprofits borrow more relative to their physical assets. When endowment and investment income are backed out of the data, nonprofits are seen to optimize the balance between debt and physical assets. [source] The Implications of Prospect Theory for Human Nature and ValuesPOLITICAL PSYCHOLOGY, Issue 2 2004Robert Jervis Central to prospect theory are far-reaching claims about what people fear and what gratifies them. Subjective well-being is a topic that social science has been reluctant to discuss in recent years, but it is central to much of our lives. A loss inflicts more harm than a comparable gain produces pleasure; this fact and the related endowment effect are important parts of our psychological makeup. The importance of change rather than absolute value position, and the related significance of the reference point and how it can be altered, can be seen as integral to human nature. [source] Cognitive Preference Reversal or Market Price Reversal?KYKLOS INTERNATIONAL REVIEW OF SOCIAL SCIENCES, Issue 2 2005Xiaoyong Chai Summary Preference Reversal Phenomenon (PRP) has been most often scrutinized as a puzzle of ,preferences', while the discovery of the ,endowment effect' explicitly questions the parity between preference and price. The author's experiment (N = 186) connects these two extraordinary findings and illustrates that PRP is only a reversal of price in a ,market.' PRP merely proves that subjects demand to be compensated based on loss under market access deprivation when a ,maximum buying'/,minimum selling' price is elicited, and preference transitivity is restored once the misleading market manipulation is experimentally controlled. By defending preference transitivity, the author asserts that normal access to the bargaining process is indispensable for a competitive market where preference price parity is required. To make valid measurements of preference and price, the sealed envelope method is substituted for the judged-indifferent-point (JIP) method, and the binding statement method is substituted for the Becker-DeGroot-Marschack method. McNemar test scores are calculated to compare the effects of different methods. [source] | ||||||||||