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Mistakes, Closure and Endowment Effect in Laboratory Experiments

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  • Anmol Ratan

Abstract

In this paper, we relax the hard closure property of experiments that have been used to study endowment effect in laboratory. We study differences in benchmark environments (hard closure) and an environment that allows participants to reverse the decisions taken in the laboratory (soft closure). We find that “endowment effect” is not observed in the soft closure treatment. The procedures in our experiment allow us to circumvent the critique of altered expectations. Our results call for a careful interpretation of experiments that suggest “endowment effect” in laboratory conditions. Other implications pertain to external validity of experiments with hard closure.

Suggested Citation

  • Anmol Ratan, 2012. "Mistakes, Closure and Endowment Effect in Laboratory Experiments," Monash Economics Working Papers 22-12, Monash University, Department of Economics.
    • Handle: RePEc:mos:moswps:2012-22
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    File URL: http://www.buseco.monash.edu.au/eco/research/papers/2012/2212mistakesclosureratan.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    prospect-theory; endowment effect; reference-dependence; loss aversion; lab experiments; field experiments; external validity;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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