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Micro Analysis of the Endowment Effect Anomaly

Micro Analysis of the Endowment Effect Anomaly. Aaron Konichek UWSP. What is the Endowment Effect. Willingness to Pay Willingness to Accept 1991-92 Thaler , Kahneman , Knestch “ Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias ” 2003 List

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Micro Analysis of the Endowment Effect Anomaly

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  1. Micro Analysis of the Endowment Effect Anomaly Aaron Konichek UWSP

  2. What is the Endowment Effect • Willingness to Pay • Willingness to Accept • 1991-92 Thaler, Kahneman, Knestch • “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias” • 2003 List • “Does Market Experience Eliminate Market Anomalies? The Case of Exogenous Market Experience”

  3. 1992 Thaler, Kahneman, Knestch • “Anomalies: The Endowment Effect, Loss Aversion, and Status Quo Bias”

  4. Experiment Designs • Quantifying the endowment effect • WTP/WTA • Observing an endowment effect • Trading

  5. Experiment Design • Age • Loss Aversion • Status Quo Bias/Fairness • Justification Effect* • Transaction Costs?

  6. Expected Results (predicted result on effect) • Age (-) • Loss Aversion (+) • Status Quo Bias/Fairness (-) • Justification Effect* (+) • Transaction Costs? (+)

  7. Expected Results • Market Choices – Loss Aversion vs. Endowment Effect • Age relates to market experience

  8. Regression • E=AGE+LA -

  9. Potential Problems • Difficult to show a different ‘amount of endowment’ for each subject

  10. Interpretation of the Results • Choice • Eliminate snags in markets

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