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The Endowment Effect in a Field Study with Risk-Reducing Instruments

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  • Filip Tomicki

    (Faculty of Economics and Finance, Wroclaw University of Economics and Business, 53-345 Wrocław, Poland)

  • Paweł Kuśmierczyk

    (Faculty of Economics and Finance, Wroclaw University of Economics and Business, 53-345 Wrocław, Poland)

Abstract

The endowment effect is a phenomenon whereby ownership increases the perceived value of goods, thereby reducing the willingness to trade. This paper presents the results of a field experiment, designed to assess the robustness of this effect when decisions concern unique, non-tangible instruments of a very high utility. Participating students were unaware of being involved in the experiment, as we monitored their decisions concerning the examination bonuses in a natural academic setting. In contrast to the majority of prior studies that focus on commodities of a known and certain value, this research examines the effect in the context of risky and ambiguous instruments, which are more difficult to evaluate. Our results strongly support the endowment effect hypothesis, proving that the effect is robust, and likely to also be observed in markets concerning high-utility, risky instruments, such as financial ones. Additionally, we find a weak level of support for the gender effect, with female respondents demonstrating a lack of bias when endowed with ambiguous instruments. The study also analyzes the efficiency of these instruments in terms of their utility in risk reduction, and the effort incentives created.

Suggested Citation

  • Filip Tomicki & Paweł Kuśmierczyk, 2024. "The Endowment Effect in a Field Study with Risk-Reducing Instruments," Risks, MDPI, vol. 12(12), pages 1-14, December.
    • Handle: RePEc:gam:jrisks:v:12:y:2024:i:12:p:194-:d:1535683
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    References listed on IDEAS

    as
    1. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1990. "Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1325-1348, December.
    2. Rachel Croson & Uri Gneezy, 2009. "Gender Differences in Preferences," Journal of Economic Literature, American Economic Association, vol. 47(2), pages 448-474, June.
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