Mistakes, Closure and Endowment Effect in Laboratory Experiments

Anmol Ratan

No 22-12, Monash Economics Working Papers from Monash University, Department of Economics

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.

Keywords: prospect-theory; endowment effect; reference-dependence; loss aversion; lab experiments; field experiments; external validity (search for similar items in EconPapers)
JEL-codes: C91 C93 D81 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2012-09
New Economics Papers: this item is included in nep-cbe, nep-evo, nep-exp and nep-upt
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