Experimental Tests of the Endowment Effect and the Coase Theorem

  title={Experimental Tests of the Endowment Effect and the Coase Theorem},
  author={Daniel Kahneman and Jack L. Knetsch and Richard H. Thaler},
  journal={Journal of Political Economy},
  pages={1325 - 1348}
Contrary to theoretical expectations, measures of willingness to accept greatly exceed measures of willingness to pay. This paper reports several experiments that demonstrate that this "endowment effect" persists even in market settings with opportunities to learn. Consumption objects (e.g., coffee mugs) are randomly given to half the subjects in an experiment. Markets for the mugs are then conducted. The Coase theorem predicts that about half the mugs will trade, but observed volume is always… 

Chapter 101 The Endowment Effect

Randomizing Endowments: An Experimental Study of Rational Expectations and Reference-Dependent Preferences

We test expectations-based reference dependence in market experiments with probabilistic forced exchange. Kőszegi and Rabin (2006) predict that when the probability of forced exchange increases,

Experimental tests of the endowment effect

The discrepancy between WTA and WTP is supposed to be a manifestation of the endowment effect (KKT). The discrepancy between the average WTA-WTP disappears in the sense of statistical significance

The Endowment Effect and the Coase Theorem

The Coase theorem prediction that the final allocation of resources will be independent of the liability rule relies on one important assumption: an individual will value a right or an asset the same

The Willingness to Pay-Willingness to Accept Gap, the 'Endowment Effect,' Subject Misconceptions, and Experimental Procedures for Eliciting Valuations

Plott and Zeiler (2005) report that the willingness-to-pay/willingness-to-accept disparity is absent for mugs in a particular experimental setting, designed to neutralize misconceptions about the

The Willingness to Pay – Willingness to Accept Gap , the “ Endowment Effect ” , Subject Misconceptions , and Experimental Procedures for Eliciting Valuations : A Reassessment by

Plott and Zeiler (2005) report that the willingness-topay/willingnessto-accept disparity is absent for mugs in a particular experimental setting, designed to neutralize misconceptions about the

What Can I Get For It? A Theoretical and Empirical Re-Analysis of the Endowment Effect

We hypothesise and confirm a previously unnoticed pattern within pre-existing data on the endowment effect, collected via seven experiments employing the original design. Subjects with low valuations

Reconsidering the Effect of Market Experience on the "Endowment Effect"

Simple exchange experiments have revealed that participants trade their endowment less frequently than standard demand theory would predict. List (2003a) finds that the most experienced dealers

The Endowment's Effect on Marginal Value

A higher endowment of some good will typically cause an individual to place a lower value on increases (or decreases) in that endowment. This property, which we call diminishing marginal value, is a



Willingness to Pay and Compensation Demanded: Experimental Evidence of an Unexpected Disparity in Measures of Value

Aside from possible income effects, measures of the maximum amounts people will pay to avoid a loss and the minimum compensation necessary for them to accept it are generally assumed to be

Measuring the Value of a Public Good: An Empirical Comparison of Elicitation Procedures

The problems associated with accurately measuring the value of a public good in an applied setting are considered. The values obtained from hypothetical elicitation procedures are compared and

The Disparity Between Willingness to Accept and Willingness to Pay Measures of Value

Psychologists have long argued that people are much more averse to a loss than attracted to an equivalent gain. This behavior, termed loss aversion, has been formalized by Kahneman and Tversky [1979]

Consumer's Surplus Without Apology

The purpose of this paper is to settle the controversy surrounding consumer's surplus' and, by so doing, to validate its use as a tool of welfare economics. I will show that observed consumer's

Industrial Organization Theory and Experimental Economies

The Introduction of laboratory experimentation in economics was motivated by theories of industrial organization and market performance. The first published market experiments were those of

Experimental Economics: Induced Value Theory

It is the premise of this paper that the study of the decision behavior of suitably motivated individuals and groups in lab- oratory or other socially isolated settings such as hospitals (R.


This paper presents empirical evidence comparing two models of trading in equitiesthe well-known tax-loss-selling hypothesis and "the disposition effect." According to the disposition effect,

Loss Aversion in Riskless Choice: A Reference-Dependent Model

Much experimental evidence indicates that choice depends on the status quo or reference level: changes of reference point often lead to reversals of preference. We present a reference-dependent