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Endowment Effects in Bundles

Author

Listed:
  • Swati Dutta
  • Jyoti Prasad Mukhopadhyay
  • Viswanath Pingali

Abstract

Behavioural experiments conducted so far to establish the presence of endowment effects have endowed the subjects typically with a single good. In this paper, we extend this analysis and test for the presence of endowment effects in a multi-good setting. Specifically, we ask ‘how does endowment effect of a good change when the endowment of other goods in the bundle changes?’ Following the literature, we measure endowment effects as the difference between willingness to pay (WTP) and willingness to accept (WTA). To do this we adopt a novel experiment design that allows us to directly pit prospect theory against neoclassical theory. We find evidence of endowment effects even in the multi-good setting. However, we do not find any statistically significant evidence of endowment effect of the good in question being sensitive/responsive to changes in the endowment of other goods.

Suggested Citation

  • Swati Dutta & Jyoti Prasad Mukhopadhyay & Viswanath Pingali, 2016. "Endowment Effects in Bundles," Studies in Microeconomics, , vol. 4(1), pages 27-45, June.
    • Handle: RePEc:sae:miceco:v:4:y:2016:i:1:p:27-45
    DOI: 10.1177/2321022215624036
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    References listed on IDEAS

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    3. Charles R. Plott & Kathryn Zeiler, 2005. "The Willingness to Pay–Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations," American Economic Review, American Economic Association, vol. 95(3), pages 530-545, June.
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