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The Endowment Effect and Evidence of Non-Reversible Indifference Curves

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... In the exchange setting, we find that allowing participants to taste the chocolate fully eliminates under-trading. This result is striking since previous studies such as Knetsch (1989) and Plott and Zeiler (2007) document exchange asymmetries in the context of known, familiar goods like mugs and pens. We suspect that this difference is driven by the relative ease of forming preferences over two known types of chocolate relative to choosing between two less directly related goods. ...
... Counter to the implications of the Coase theorem, their findings suggested that the assignment of initial property rights has important implications for final allocations. Knetsch (1989) and Kahneman et al. (1990) interpreted these results as evidence for loss aversion and established the use of valuation and exchange experiments to formally test for the existence of endowment effects in the lab. The term endowment effect itself, which was introduced by Thaler (1980), connotates the idea that "losses loom larger than gains" (Kahneman & Tversky, 1979, p. 279), a key aspect of prospect theory (Kahneman & Tversky, 1979). ...
... To avoid confounding the empirical finding and its cause, we follow Plott and Zeiler (2007) in referring to it more neutrally as an exchange or valuation asymmetry, depending on the setting. The seminal work by Knetsch (1989) and Kahneman et al. (1990) spawned a series of studies documenting the existence of this effect for various market and non-market goods (see Horowitz and McConnell (2002) for an overview). ...
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We experimentally test for the role of choice uncertainty in generating "endowment effects" - the robust empirical finding that endowing participants with an item raises their reported valuation relative to participants being asked to purchase it instead. While there is some compelling evidence concerning trade uncertainty in the literature, there is substantially less evidence regarding the importance of choice uncertainty. This paper provides novel support for the significance of choice uncertainty in the context of both trading and stated valuations. In a primary set of studies, we find that reducing choice uncertainty eliminates under-trading in the exchange setting and decreases (but does not eliminate) the difference in average valuations reported by buyers and sellers, mainly by decreasing the number of extreme valuations by sellers. Interestingly, our treatment does not lead to a significant increase in the number of mutually acceptable trades implied by stated valuations. Comparing the results from our two primary experiments therefore suggests that value uncertainty continues to play a role in generating valuation asymmetries even after relevant product uncertainty has been resolved. A set of follow-up studies with modified designs replicates this finding in the exchange setting but fails to generate a valuation asymmetry in the control condition, possibly due to pandemic-related mitigation measures and less participant time with the endowed item. Supplementary information: The online version contains supplementary material available at 10.1007/s11166-022-09387-8.
... Psychologically, a gain triggers a feeling of satisfaction, a loss triggers a feeling of dissatisfaction. Comparing the satisfaction level for a gain of a value X to the level of dissatisfaction triggered by the loss of a value of −X we observe that the level of dissatisfaction is higher than that of the satisfaction (Thaler, 1980;Knetsch, 1989;Kahneman et al., 1990). According to some authors, loss aversion would be the result of an evolutionary process based on the importance of overvaluing these goods when bargaining to acquire more resources. ...
... This is what the experimenter does at first, as they no longer talk about the given object and move on. Often they continue their lecture or the students are tasked to do some work (e.g., to fill in a short questionnaire, see Knetsch, 1989). The second stage of EP, that of the request for an exchange, clearly corresponds to a departure from the norm of politeness expected of someone offering a gift. ...
... To test these three hypotheses, we conducted a similar experiment as was described by Knetsch (1989) on Kanak participants either in a Western context and in French with a Western experimenter, or in a Kanak context and in the vernacular with a Kanak experimenter in the same French environment (a vocational training center) and with French objects not typical of Kanak culture. In the first situation, in the French context, Kanak participants should behave similarly to Western participants under the same conditions. ...
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In this paper, Knetsch's exchange paradigm is analyzed from the perspective of pragmatics and social norms. In this paradigm the participant, at the beginning of the experiment, receives an object from the experimenter and at the end, the same experimenter offers to exchange the received object for an equivalent object. The observed refusal to exchange is called the endowment effect. We argue that this effect comes from an implicature made by the participant about the experimenter's own expectations. The participant perceives the received item as a gift, or as a present, from the experimenter that cannot be exchanged as stipulated by the social norms of western politeness common to both the experimenter and the participant. This implicature, however, should not be produced by participants from Kanak culture for whom the perceived gift of a good will be interpreted as a first act of exchange based on gift and counter-gift. This exchange is a natural, frequent, balanced, and indispensable act for all Kanak social bonds whether private or public. Kanak people also know the French social norms that they apply in their interactions with French people living in New Caledonia. In our experiment, we show that when the exchange paradigm takes place in a French context, with a French experimenter and in French, the Kanak participant is subject to the endowment effect in the same way as a French participant. On the other hand, when the paradigm is carried out in a Kanak context, with a Kanak experimenter and in the vernacular language, or in a Kanak context that approaches the ceremonial of the custom, the endowment effect is no longer observed. The same number of Kanak participants accept or refuse to exchange the endowed item. These results, in addition to providing a new explanation for the endowment effect, highlight the great flexibility of decisions according to social-cultural context.
... The ordinal utility theory postulates an irreversible order of preferences [14]. However, Knetsch [15] was able to refute this hypothesis in an experiment. First, he gave a group of 76 students coffee cups worth USD 4.95 and gave all participants the chance to exchange the cups for a bar of chocolate (400 g) worth USD 6.00. ...
... Ninety percent of the test persons refused. [15] (p. 1278). ...
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This research answers the question of which nudges can be created to subtly influence event attendees in such a way that they contribute to the implementation of a green event. Using the qualitative content analysis according to Mayring, three music festivals were analyzed in detail with regard to their measures for ecological sustainability. All available online resources—in particular, the websites of the music festivals, blog entries, online newspaper articles and, also, observations during several personal visits—were used as sources of the qualitative data. A key result was the development of a model for nudges that can generally be used and implemented for events. The goals, the nudges developed and the possible measures with regard to ecological sustainability are defined in the areas of transport, garbage, electricity, gastronomy, sanitation and compensation of emissions. The more music festival participants already behave in an ecologically sustainable manner, the more others will join them. This can be exploited by using social nudges that consciously inspire group social dynamics. In order to be able to use nudging sensibly, organizers have to internalize that they act as decision-makers, which entails a great ethical and moral responsibility. Even inconspicuous nudges can be very effective.
... Bunun yanında sahiplenme etkisinin nedenleri ya da maksimum satın alma ve minimum satma fiyatları arasındaki farka sahiplenme etkisi denilmesi konusunda farklı görüşler bulunmakla birlikte birçok çalışma da sahiplenme etkisinin varlığı ve kâr amacı gütme, öğrenme ve ticari deneyim gibi farklı durumların sahiplenme etkisinde azalmaya neden olduğu sonucuna ulaşmıştır. (Betts ve Taran, 2006;Brebner ve Sonnemans, 2018;Franciosi vd., 1996;Thaler, 1980;Kahneman vd., 1990;Knestch, 1989;List, 2004;MacDonald ve Bowker, 1994;Reb ve Connolly, 2007;Sprenger, 2015;Tong vd., 2016;Weaver ve Frederick, 2012;Van Dijk ve Van Knippenberg, 1996). ...
... Sahiplenme etkisi, tüketim mallarını satın almaya razı olacaklarından daha yüksek fiyatlara satmak isteyen insanlarda görüldüğü ifade edilmektedir (Corr ve Plagnol, 2019: 90-91). Knestch (1989Knestch ( : 1278Knestch ( -1279 Sahiplenme etkisinin çok zayıf bir teori olduğu ve birçok durumda geçerli olmadığına dair (Nwogugu, 2006: 459) Plott ve Zeiler (2005 ise WTP ve WTA arasındaki farkın sahiplenme etkisinden değil de "özne yanılgıları" konseptinden kaynaklanıyor olabileceğini ifade etmektedirler. ...
Thesis
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İktisadın bir bilim olarak kabulünden önce de bir bilim dalı olarak görüldükten sonra da öznesi ve nesnesi insan olmuştur. Bilim Devrimiyle birlikte doğa bilimleri dışındaki bilimlerin tam nesnel olamamaları nedeniyle gerçek bilim olarak kabul edilmemesi iktisat biliminin iktisadi insanı tanımlamasına neden olmuştur. İktisadi insan ile iktisat bilimi konu edindiği insanı nesnelleştirerek iktisadi modelleri matematikselleştirmiştir. İktisattaki insanın gerçek insan olma vasıflarını yitirmesinden rahatsızlık duyan iktisatçılar, davranışsal iktisat çalışmalarıyla iktisattaki insana insanlığını geri kazandırmayı amaçlamışlardır. 1979'da Kahneman ve Tversky tarafından geliştirilen Beklenti Teorisi bu amaçla davranışsal iktisat altında üretilen kuramlardan biridir. Beklenti Teorisine göre bireyler risk altında karar ve seçim problemlerinde kazanç durumunda riskten kaçınan davranış sergilerlerken, kayıp durumunda risk alan yani kayıptan kaçınan davranış sergilemektedirler. Ayrıca bireylerin, kâr amacı gütmeseler de bir mal için vermiş oldukları minimum satma fiyatları maksimum satın alma fiyatlarından büyüktür yani bireylerde sahiplenme etkisi mevcuttur. Bu çalışmanın ana amacı Beklenti Teorisinin tutarlılığı ve geçerliğinin test edilmesidir. Bu doğrultuda çalışmanın ana hipotezi Beklenti Teorisinin geçerli olduğu yönünde belirlenmiştir. Verilerin toplanması amacıyla grup içi tasarımla bir deney prosedürü hazırlanmış ve Aydın Adnan Menderes Üniversitesi Nazilli İktisadi ve İdari Bilimler Fakültesi lisans öğrencilerine uygulanmıştır. Toplanan veriler betimleyici ve non-parametrik istatistik veri analiz yöntemleriyle incelenmiştir. Elde edilen bulgular Beklenti Teorisinin geçerli olduğu yönündedir. Deney katılımcılarında çoğunlukla kazançlarda riskten kaçınma, kayıplarda risk alma davranışları gözlenmiştir ve deney katılımcılarında çoğunlukla sahiplenme etkisinin varlığı görülmüştür. Beklenti Teorisi konusunda Türkiye'de yapılmış alan çalışması ve Türkçe literatür çok kısıtlıdır. Bu çalışma literatürdeki bu boşluğu dolduracak öncü bir çalışma olması nedeniyle önem arz etmektedir. Before and after economics is considered a science discipline, the subject, and object of economics have been the human. With the Scientific Revolution, the fact that sciences other than natural sciences were not accepted as real science due to their inability to be fully objective caused the science of economics to define the economic man. With economic man, the science of economics has mathematized the economic models by objectifying the human subject. The economists, who are disturbed by the fact that the human being in economics has lost their qualifications to be a real human, aimed to restore the humanity of the human in economics through behavioral economics studies. Prospect Theory, developed by Kahneman and Tversky in 1979, is one of the theories produced under behavioral economics for this purpose. According to the Prospect Theory, in decision and choice problems under risk individuals exhibit risk-averse behavior in case of gains, while they display risk-taking, that is, loss-averse behavior in case of losses. In addition, even if individuals do not seek profit, the minimum selling prices for a good are higher than the maximum purchase prices, that is, the individuals have an endowment effect. The main purpose of this study is to test the consistency and validity of the Prospect Theory. In this direction, the main hypothesis of the study was determined as the Prospect Theory is valid. In order to collect the data, an experimental procedure was prepared with a within-group design and applied to the undergraduate students of Aydın Adnan Menderes University Nazilli Faculty of Economics and Administrative Sciences. The collected data were analyzed with descriptive and non-parametric statistical data analysis methods. The findings show that the Prospect Theory is valid. It is mostly observed that experiment participants have risk avoidance in gains and risk-taking in losses, and it was observed that the experimental participants mostly had the endowment effect. Field studies and Turkish literature on Prospect Theory in Turkey are very limited. This study is important because it is a pioneering study that will fill this gap in the literature. Tez No/Thesis Number: 720927 Tezin tam metnine aşağıdaki adreste "tarama terimi giriniz" kısmına tez numarasını (720927) yazıp "aranacak alan" kısmında "Tez No" seçeneğini seçip aratarak ulaşabilirsiniz./You can reach the full text of the thesis from the web adress below by writing the thesis number (720927) in the "Enter your search terms" section and choosing the "Thesis No" in the "Search in" section and clicking on the "Search" button . https://tez.yok.gov.tr/UlusalTezMerkezi/
... Such an approach can be backed by a large literature in behavioral economics finding evidence of loss aversion (Kahneman & Tversky, 1979). For example, willingness to accept often exceeds willingness to pay, a behavioral regularity known as the endowment effect (Kahneman et al., 1990;Thaler, 1980); decision-makers often prefer to retain the status quo (Knetsch, 1989;Samuelson & Zeckhauser, 1988); investors demand higher returns from stocks with downside risk (Ang et al., 2006); traders who experience losses in the morning take extra risks in the afternoon to recover (Coval & Shumway, 2005); investors are prone to the disposition effect (Odean, 1998;Shefrin & Statman, 1985) etc. Markowitz (1952) mean-variance approach always violates the first-order stochastic dominance (Borch, 1969). Such violations are normatively unappealing and rarely observed in the data (Carbone & Hey, 1995;Loomes & Sugden, 1998, Table 2, p. 591;Hey, 2001, Table 2, p.14; see, however, Tversky & Kahneman, 1986, p. 264;Birnbaum & Navarrete, 1998, p. 61). ...
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... Another effect illustrating loss aversion is the "status quo bias" (Samuelson & Zeckhauser, 1988), which refers to the tendency to remain in the same state when change involves exchanging a relatively small loss for a larger gain. For instance, Knetsch (1989) randomly gave students either a mug or a chocolate bar. While given the opportunity to trade one for the other, approximately 90% of the students did not do so, showing a preference for whatever they were randomly allocated. ...
Chapter
This chapter reviews normative and descriptive aspects of decision making. Expected Utility Theory (EUT), the dominant normative theory of decision making, is often thought to provide a relatively poor description of how people actually make decisions. Prospect Theory has been proposed as a more descriptively valid alternative. The failure of EUT seems at least partly due to the fact that people’s preferences are often unstable and subject to various influences from the method of elicitation, decision context, and goals. In novel situations, people need to infer their preferences from various cues such as the context and their memories and emotions. Through repeated experience with particular decisions and their outcomes, these inferences can become more stable, resulting in behavior that is more consistent with EUT.
... Throughout the history of consumer behavior research, consumer choice and decision-making have always been the focus of consumer behavior research, and the most central issue is "how consumers make decisions" [1]. ...
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