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The endowment effect and the reference state: Evidence and manipulations

Jack Knetsch () and Wei-Kang Wong ()

Journal of Economic Behavior & Organization, 2009, vol. 71, issue 2, 407-413

Abstract: Recent reports suggest that the "endowment effect" may be due to conditions under which it is observed and explained by incentives long recognized in standard theory. Evidence from new experiments, reported here, provides empirical support for the role of the economic environment on people's perceived reference state and consequently on their valuations, as suggested by Köszegi and Rabin [Köszegi, B., Rabin, M., 2006. A model of reference-dependent preferences. Quarterly Journal of Economics 121, 1133-1165], and indicates that the disappearance of the valuation disparity is more likely due instead to conditions that weaken the perception of reference states. Further, these conditions appear to be poor approximations of those that prevail in most cases for which valuations are normally made.

Keywords: Endowment; effect; Exchange; experiments; Reference; state (search for similar items in EconPapers)
Date: 2009
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Journal of Economic Behavior & Organization is currently edited by Houser, D. and Puzzello, D.

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