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Endowments and risky choice

Erin Crockett and Sean Crockett

Journal of Economic Behavior & Organization, 2019, vol. 159, issue C, 344-354

Abstract: We report evidence of an endowment effect for risk, extending previous results to the popular paired-choice lottery setting. Specifically, we observe a distribution of revealed preferences consistent with risk aversion that diminishes in endowed variance, although the effect is considerably weaker for compound relative to simple lotteries. We also find that in the absence of an obvious endowment, subjects behave as if the comparatively lower-variance lottery is a cognitive reference point, revealing a distribution of preferences indistinguishable from subjects who are explicitly endowed with the low-variance lottery. Finally, we report no significant difference in elicited preferences between two popular mechanisms (the Multiple Price List and a variant on the Becker, DeGroot, and Marshak mechanism) when no endowment is induced, suggesting previously reported differences in behavior between the two mechanisms may be in part a consequence of relative responsiveness to endowment framing.

Keywords: Endowment effect; Reference dependent preferences; Risk aversion; Risk elicitation; Experiment (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jebo.2019.01.015

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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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