Endowment Effects in Bundles

Swati Dutta, Jyoti Prasad Mukhopadhyay and Viswanath Pingali

No WP2014-06-01, IIMA Working Papers from Indian Institute of Management Ahmedabad, Research and Publication Department

Abstract: Behavioral experiments conducted so far to establish existence of endowment effect as propounded by prospect theorists typically endow subjects with a single good. In this paper we depart from this setting by giving subjects initial endowment bundles which consist of two goods: chocolates and pens and directly pit neo-classical theory against prospect theory by comparing divergence between willingness to pay (WTA) and willingness to accept (WTP). Using a novel experimental setting we examine the difference in such divergence for a group that is given physical bundles as endowment vis-à-vis a group which is asked to imagine the same initial endowment bundle in their possession. We find weak evidence of endowment effect. Moreover, we examine how endowment effect of a good changes when units of the other good in initial endowment bundle change. We find no statistically significant evidence of endowment effect of a good being sensitive to the number of units of the other good in initial endowment bundle.

Date: 2014-06-05
New Economics Papers: this item is included in nep-cbe, nep-cdm and nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:iim:iimawp:12888

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