ECO331H1 Chapter Notes - Chapter 5: Coase Theorem, Daniel Kahneman, Loss Aversion
Document Summary
Experimental tests of the endowment effect and the. February 5, 2019: willingness to accept exceeds willingness to pay. Endowment effect: paper shows endowment effect persists even in market settings with opportunities to learn. Contrasts to empirical findings of higher selling than buying prices: endowment effect: increased value of good to individual when good becomes part of individual"s endowment. Goods purchased for resale rather than utilization. Some subjects were endowed with tokens while others had the option of buying tokens. Tokens could be cashed in at end of experiment. Each subject was assigned different value for token from other subjects: experimenters randomly endowed half of subjects with goods, making them sellers and the other half buyers. Conventional theory suggests supply/demand curves should mirror each other: half the goods provided should change hands. Experiment repeated several times to see if market experience eliminates undertrading. Findings and results: subjects showed almost no undertrading in induced-value market.
