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Randomizing Endowments: An Experimental Study of Rational Expectations and Reference-Dependent Preferences

Author

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  • Annette Cerulli-Harms
  • Lorenz Goette
  • Charles Sprenger

Abstract

We test expectations-based reference dependence in market experiments with probabilistic forced exchange. Koszegi and Rabin (2006) predict that when the probability of forced exchange increases, individuals cannot expect to stick with the status quo, and should grow more willing to exchange. This mechanism may eliminate and even reverse the "endowment effect" (Knetsch and Sinden 1984; Kahneman, Knetsch, and Thaler 1990). In a series of experiments with overall 930 subjects, we show some tentative support for the notion that attitudes toward exchange are influenced by the probability of forced exchange. However, the results are sensitive to small changes in experimental design.

Suggested Citation

  • Annette Cerulli-Harms & Lorenz Goette & Charles Sprenger, 2019. "Randomizing Endowments: An Experimental Study of Rational Expectations and Reference-Dependent Preferences," American Economic Journal: Microeconomics, American Economic Association, vol. 11(1), pages 185-207, February.
    • Handle: RePEc:aea:aejmic:v:11:y:2019:i:1:p:185-207
    Note: DOI: 10.1257/mic.20170271
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    Citations

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    Cited by:

    1. Cédric Argenton & Xiaoyu Wang, 2023. "Litigation and settlement under loss aversion," European Journal of Law and Economics, Springer, vol. 56(2), pages 369-402, October.
    2. Kelvin Mashisia Shikuku & Erwin Bulte & Carl Johan Lagerkvist & Nhuong Tran, 2023. "Endowments, expectations, and the value of food safety certification: experimental evidence from fish markets in Nigeria," Experimental Economics, Springer;Economic Science Association, vol. 26(5), pages 1060-1084, November.
    3. Balzer, Benjamin & Rosato, Antonio & von Wangenheim, Jonas, 2022. "Dutch vs. first-price auctions with expectations-based loss-averse bidders," Journal of Economic Theory, Elsevier, vol. 205(C).
    4. Lucas C. Coffman, 2019. "Expectations do not affect punishment," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 5(2), pages 182-196, December.
    5. Clist, Paul & D’Exelle, Ben & Verschoor, Arjan, 2021. "An endowment effect for risk levels: Evidence from a Ugandan lab," Journal of Economic Behavior & Organization, Elsevier, vol. 182(C), pages 297-310.
    6. Benjamin Balzer & Antonio Rosato & Jonas von Wangenheim, 2020. "Dutch versus First-Price Auctions with Dynamic Expectations-Based Reference-Dependent Preferences," Working Paper Series 2020/05, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
    7. Achilleas Vassilopoulos & Andreas C. Drichoutis & Rodolfo M. Nayga, 2024. "Reference dependence, expectations and anchoring in the Becker-DeGroot-Marschak mechanism," Theory and Decision, Springer, vol. 97(4), pages 637-683, December.
    8. Heffetz, Ori, 2021. "Are reference points merely lagged beliefs over probabilities?," Journal of Economic Behavior & Organization, Elsevier, vol. 181(C), pages 252-269.
    9. Georgalos, Konstantinos & Paya, Ivan & Peel, David, 2024. "The Kőszegi–Rabin expectations-based model and risk-apportionment tasks for elicitation of higher order risk preferences," Journal of Economic Behavior & Organization, Elsevier, vol. 224(C), pages 749-770.
    10. Gagnon-Bartsch, Tristan & Bushong, Benjamin, 2022. "Learning with misattribution of reference dependence," Journal of Economic Theory, Elsevier, vol. 203(C).
    11. Wei-Hsiang Lin & Justin L Gardner & Shih-Wei Wu, 2020. "Context effects on probability estimation," PLOS Biology, Public Library of Science, vol. 18(3), pages 1-45, March.

    More about this item

    JEL classification:

    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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