Theory and Decision

, Volume 68, Issue 1–2, pp 173–192

Endowment effects? “Even” with half a million on the table!

Article

Abstract

In the television show Deal or No Deal, a contestant is endowed with a sealed box containing a monetary prize between one cent and half a million euros. In the course of the show, the contestant is offered to exchange her box for another sealed box with the same distribution of possible monetary prizes inside. This offers a unique natural experiment for studying endowment effects under high monetary incentives. We find evidence of only a weak endowment effect when contestants exchange their box for another box with the same distribution of possible prizes.

Keywords

Endowment effect Expected utility theory Prospect theory Television show 

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. Abdellaoui M. (2000) Parameter-free elicitation of utility and probability weighting functions. Management Science 46: 1497–1512CrossRefGoogle Scholar
  2. Blavatskyy P., Pogrebna G. (2008) Risk aversion when gains are likely and unlikely: Evidence from a natural experiment with large stakes. Theory and Decision 64: 395–420CrossRefGoogle Scholar
  3. Blavatskyy, P., & Pogrebna, G. (2009). Models of stochastic choice and decision theories: Why both are important for analyzing decisions. Journal of Applied Econometrics (forthcoming)Google Scholar
  4. Bombardini, M., & Trebbi, F. (2005). Risk aversion and expected utility theory: A field experiment with large and small stakes (unpublished manuscript)Google Scholar
  5. Brookshire D., Coursey D. (1987) Measuring the value of a public good: An empirical comparison of elicitation procedures. American Economic Review 77: 554–566Google Scholar
  6. Coursey D., Hovis J., Schulze W. (1987) The disparity between willingness to accept and willingness to pay measures of value. Quarterly Journal of Economics 102: 679–690CrossRefGoogle Scholar
  7. Charness G., Levin D. (2005) When optimal choices feel wrong: A laboratory study of Bayesian updating, complexity, and affect. American Economic Review 95: 1300–1309CrossRefGoogle Scholar
  8. Deck C., Lee J., Reyes J. (2008) Risk attitudes in large stakes gambles: Evidence from a game show. Applied Economics 40(1): 41–52CrossRefGoogle Scholar
  9. Friedman D. (1998) Monty Hall’s three doors: Construction and deconstruction of a choice anomaly. American Economic Review 88: 933–946Google Scholar
  10. Kahneman D., Knetsch J.L., Thaler R.H. (1990) Experimental tests of the endowment effect and the Coase Theorem. Journal of Political Economy 98: 25–48CrossRefGoogle Scholar
  11. Kahneman D., Knetsch J., Thaler R. (1991) Anomalies: The endowment effect, loss aversion, and status quo bias. Journal of Economic Prospectives 5(1): 193–206Google Scholar
  12. Kahneman D., Tversky A. (1979) Prospect theory: An analysis of decision under risk. Econometrica 47: 263–291CrossRefGoogle Scholar
  13. Knetsch J.L. (1989) The endowment effect and evidence of nonreversible indifference curves. American Economic Review 79(5): 1277–1284Google Scholar
  14. Knetsch J.L., Sinden J.A. (1984) Willingness to pay and compensation demanded: Expermental evidence of an unexpected disparity in measures of value. Quarterly Journal of Economics 99(3): 507–521CrossRefGoogle Scholar
  15. Knez P., Smith V.L., Williams A. (1985) Individual rationality, market rationality, and value estimation. American Economic Review 75: 397–402Google Scholar
  16. Koszegi B., Rabin M. (2006) A model of reference-dependent preferences. Quarterly Journal of Economics 121(4): 1133–1165CrossRefGoogle Scholar
  17. List J. (2004) Neoclassical theory versus prospect theory: Evidence from the marketplace. Econometrica 72(2): 615–625CrossRefGoogle Scholar
  18. Loomes G., Sugden R. (1987) Some applications of a more general form of regret theory. Journal of Economic Theory 41: 270–287CrossRefGoogle Scholar
  19. Myagkov M., Plott Ch.R. (1997) Exchange economies and loss exposure: Experiments exploring prospect theory and competitive equilibria in market environments. American Economic Review 87(5): 801–828Google Scholar
  20. Plott Ch.R., Zeiler K. (2007) Exchange asymmetries incorrectly interpreted as evidence of endowment effect theory and prospect theory?. American Economic Review 97: 1449CrossRefGoogle Scholar
  21. Pogrebna G. (2008) Naive advice when half-a-million is at stake. Economics Letters 98(2): 148–154CrossRefGoogle Scholar
  22. Post T., Vanden Assem M., Baltussen G., Thaler R. (2008) Deal or no deal? Decision making under risk in a large-payoff game show. American Economic Review 98(1): 38–71CrossRefGoogle Scholar
  23. Samuelson W., Zeckhauser R. (1988) Status quo bias in decision making. Journal of Risk and Uncertainty 1(1): 7–59CrossRefGoogle Scholar
  24. Shogren J.F., Shin S.Y., Hayes D.J., Kliebenstein J.B. (1994) Resolving differences in willingness to pay and willingness to accept. American Economic Review 84: 255–270Google Scholar
  25. Thaler R. (1980) Toward a positive theory of consumer choice. Journal of Economic Behavior and Organization 1: 39–60CrossRefGoogle Scholar
  26. Tversky A., Kahneman D. (1991) Loss aversion in riskless choice: A reference-dependent model. Quarterly Journal of Economics 106: 1039–1061CrossRefGoogle Scholar
  27. Tversky A., Kahneman D. (1992) Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty 5: 297–323CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media, LLC. 2009

Authors and Affiliations

  1. 1.Institute for Empirical Research in EconomicsUniversity of ZurichZurichSwitzerland
  2. 2.Institute for Social and Economic Research and PolicyColumbia UniversityNew YorkUSA

Personalised recommendations