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Topic: Endowment effect

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In the News (Sun 26 May 19)

  Endowment effect -- Facts, Info, and Encyclopedia article   (Site not responding. Last check: 2007-11-02)
The endowment effect was described as inconsistent with standard (additional info and facts about economic) economic theory which asserts that a person's willingness to pay (WTP) for a good should be equal to their willingness to accept (WTA) compensation to be deprived of the good.
The effect is related to (additional info and facts about loss aversion) loss aversion and (additional info and facts about status quo bias) status quo bias in (additional info and facts about prospect theory) prospect theory.
Whether or not the endowment effect is a relevant (additional info and facts about economic) economic phenomenon is somewhat uncertain; it is possibly a reflection of conventional substitution effects.
www.absoluteastronomy.com /encyclopedia/e/en/endowment_effect.htm   (356 words)

 Endowment Mortgage   (Site not responding. Last check: 2007-11-02)
Endowment as a verb refers to the act of enstowing powers or capacities to a person or institution.
Today, the Endowment is practiced mainly by the Church of Jesus Christ of Latter-day Saints and its offshoots; for many other sects of Mormonism, such as the Community of Christ, the ceremony is of historical interest only.
The initiation consists of washing and anointing by a "priest" or "priestess" (depending on the sex of the initiate), culminating in the clothing of the patron in a "Garment of the Holy Priesthood," which is thereafter worn as an undergarment.
www.wwwtln.com /finance/69/endowment-mortgage.html   (1255 words)

 Loss aversion - Wikipedia, the free encyclopedia
Though traditional economists consider this "endowment effect" and all other effects of loss aversion to be completely irrational, that is why it is so important to the fields of marketing and behavioral finance.
In addition, it has been asserted that the effect of relative evaluation is more pronounced the greater the potential amount saved is relative to the total amount the decision-maker has to spend.
All of the above effects can be expressed in terms of the utility function of money, and, in particular, not regarding money as a linear measure of utility.
en.wikipedia.org /wiki/Loss_aversion   (564 words)

 ProfessorBainbridge.com: The endowment effect   (Site not responding. Last check: 2007-11-02)
My sense of the endowment effect literature is that it usually focuses on low cost objects of no particular value to the holder (coffee mugs in the classic experiment), so as to eliminate the problem of interpersonal comparisons of utility.
I was particularly stuck by his citation of endowment effect studies where the subjects in fact placed a high personal value on the asset in question.
The regulator ought to be confident that (a) the endowment effect is really present; (b) as a result of the endowment effect, an inefficient outcome is proving sticky; (c) that market experience cannot remove the anomaly; and (d) there is a superior regulatory solution.
www.professorbainbridge.com /2003/10/the_endowment_e.html   (865 words)

 [No title]
The endowment effect and the residual difference are 3 percent in favor of immigrants and 7 percent in favor of natives, respectively.
It is concluded that the endowment effect in the evaluation of time is based on the joint action of mere ownership (causing the target person effect) and loss aversion (causing the transaction effect).
The economic explanation which is based on income effects and substitution effects cannot account for the observed discrepancies so that non-economic explanations have to be taken into consideration, too: fir s t, moral aspects which imply a dismissal of the monetary evaluation of environmental goods may play a role.
www.mtsu.edu /~eaeff/712/endowmenteffect.rtf   (10613 words)

 [No title]   (Site not responding. Last check: 2007-11-02)
Status quo bias, the endowment effect and loss aversion Status quo bias refers to the finding that an option is more desirable if it is designated as the “status quo” than when it is not so designated; and this for no other reason than that it is so designated (Kahneman et al., 1991: 198).
The endowment effect refers to the differential weight placed on the value of an option depending on whether one possess the option and is faced with its loss or whether one does not possess it and has the potential to gain it.
The explanation, according to endowment theory, is that those issued with a mug at the beginning of the experiment looked upon it as part of their endowment; relinquishing it is considered a loss and thus weighs more heavily than the potential gain of a mug through purchase.
www.socialeconomics.org /uploads/peacock.doc   (5819 words)

 SSRN-The Endowment Effect and Legal Analysis by Russell Korobkin
A consequence of the endowment effect is the "offer-asking gap", which is the empirically observed phenomenon that people will often demand a higher price to sell a good that they possess than they would pay for the same entitlement if they did not possess it at present.
It also shows that careful normative legal analysis based on the endowment effect must take into account the context-dependent nature of the effect and the causes of the effect, neither of which are fully understood.
Thus, when the endowment effect is used as a basis for normative claims, these claims must often be qualified and contingent.
papers.ssrn.com /sol3/papers.cfm?abstract_id=326360   (511 words)

 Conglomerate Blog: Business, Law, Economics & Society   (Site not responding. Last check: 2007-11-02)
This experiment is said to illustrate the endowment effect, which basically says that I value what is mine over an equivalent object that is not mine.
The presentation was based on a paper she co-authored with Charles R. Plott of CalTech: The Willingness to Pay/Willingness to Accept Gap, the Endowment Effect, and Experimental Procedures for Eliciting Valuations.
My only hesitation is that I'm dubious of the "strong form" of her thesis: that because the endowment effect disappears when you change the conditions, there is no such thing as the endowment effect.
www.theconglomerate.org /2005/10/more_from_the_m.html   (517 words)

 Belsky & Endowment Effect   (Site not responding. Last check: 2007-11-02)
While the endowment effect may help us more thoroughly enjoy those bottles of wine when we finally do pop them open, it can also cause us to make poor investment decisions when applied against our less tasty stock acquisitions.
In the world of investing, the endowment effect can cause investors to hold onto assets that they would not purchase either because they don’t fit into the asset allocation plan, or they are viewed as so highly priced that they are poor investments from a risk/reward perspective.
The most common example of the endowment effect is investors’ reluctance to sell stocks or mutual funds that were inherited, purchased by a deceased spouse, or accumulated through stock options or some type of profit-sharing/retirement plan.
www.gordonsnyder.com /common/belsky.html   (504 words)

 Endowment Effect: Can people learn to be as rational as economic theory supposes?
It explores the "endowment effect", one of the chief tenets of prospect theory.
With barely 10% of students opting to trade, the endowment effect seemed established (you would expect 50% to have swapped, given the random allocation of gifts).
The criticism has been taken seriously, as it should be: if the endowment effect is real, people's economic decisions are fundamentally different from what economists have assumed.
www.turtletrader.com /endowment-effect.html   (441 words)

Another interesting article by one of my colleagues is a forthcoming article by my colleague Kathy Zeiler, co-authored with the legendary Charlie Plott, in the American Economic Review on the so-called "endowment effect." The "endowment effect" has emerged as a staple of behavioral economics, especially in critiques of the real-world validity of the Coase Theorem.
It has been called to my attention that many readers don't know what the "endowment effect" or the "WTP-WTA" gap is. The endowment effect postulates that people place a different value on a given item depending on whether they possess it or do not, as reflected by the WTP-WTA gap.
The study I cite concludes that there is in fact no endowment effect and no robust finding of a systematic gap that leads to a higher willingness to accept than willingness to pay for a given good.
volokh.com /posts/1102630148.shtml   (317 words)

 [Jdm-society] Viewpoint and Configural Weighting
Birnbaum and Stegner tested a model to account for more than the main effect of buying versus selling, which in a trivial experiment (e.g., one object) might be due to changes of value or changes in weight.
Decider: I thought that the reason sellers set higher prices was due to their reference point for value, and the notion that they see the price paid as a gain and the item sold as a loss, whereas the buyer sees money paid as a loss and the item bought as a gain.
The endowment effect is a framing effect which is a viewpoint effect.
www.sjdm.org /mail-archive/jdm-society/2003-August/001560.html   (1445 words)

 [Jdm-society] Re: Endowment or Viewpoint Effect?
Decision Researcher: I’d say you’d provided more evidence for the “endowment effect.” You showed that the “fair” price is very close to WTP, suggesting that most of the bias is in WTA, which is what the endowment effect entails.
Decision Researcher: There is no mystical "endowment" effect whereby the mug changes value by virtue of possession.
And you are right that my example in which the neutral judge and the buyer were much closer together ($3 vs. $2.25) than either was to the seller ($6) supports the idea of the endowment effect.
www.sjdm.org /mail-archive/jdm-society/2003-August/001559.html   (688 words)

 ProfessorBainbridge.com: Behavioral Economic Analysis of Law   (Site not responding. Last check: 2007-11-02)
The classic demonstration of the endowment effect variant of the status quo bias was a laboratory experiment in which students were initially endowed either with a coffee mug or six dollars cash.
The money quote is "Money itself does not create an endowment effect, but the effect does appear to exist for financial instruments that are valued only for the money they are worth (i.e., have no intrinsic value themselves) if the value of the instrument is uncertain.
These results suggest that securities and other financial instruments can create an endowment effect even though they are held as stores of wealth rather than for their intrinsic or 'use' value." The Endowment Effect and Legal Analysis, 97 Northwestern University Law Review 1227, 1236-37 (2003).
www.professorbainbridge.com /2003/09/behavioral_econ.html   (1616 words)

 [No title]
Understanding the interaction effects between procedures could be useful in constructing a theory that explains and predicts behavior in exchange experiments (and more broadly).
First, either no “endowment effect” of the sort predicted by prospect theory exists or the effect is sufficiently weak that other phenomena easily swamp it.
In some cases throughout this paper we use “endowment effect theory” to distinguish the theoretical explanation from the observed phenomenon, which we refer to as an exchange asymmetry.
www.utexas.edu /law/news/colloquium/papers/Zeilepaper.doc   (7933 words)

 Stumbling and Mumbling: Terrorism, irrationality and natural selection   (Site not responding. Last check: 2007-11-02)
They considered the endowment effect - the habit people have of valuing goods highly simply because they possess them.
If potential aggressors know this, they will be less likely to predate upon people with strong endowment effects, which allows them to survive and multiply more than those less willing to fight to defend their property.
The endowment effect is not the only apparent irrationality that strengthens man's bargaining power and hence probability of survival.
stumblingandmumbling.typepad.com /stumbling_and_mumbling/2005/07/terrorism_irrat.html   (582 words)

 CRIEFF Discussion Paper Number 9416   (Site not responding. Last check: 2007-11-02)
This paper demonstrates that the results recently presented by Shogren et al (1994) are insufficient to reject the endowment effect as a significant cause of the divergence between willingness to pay (WTP) and willingness to accept (WPA) values.
A more transparent means of testing for the presence of an endowment effect is discussed and the combined role that the endowment effect and the degree of substitutability may play in this disparity is illustrated.
Finally, experimental evidence, drawn from the literature, is shown to support the argument that the endowment effect is a source of the persistent WTP/WTA disparity.
www.st-andrews.ac.uk /institutes/crieff/dp9416.html   (120 words)

 The Endowment Effect, Loss Aversion, and Status Quo Bias
* The Endowment Effect: The value of a good increases when it becomes a part of a persons endowment.
Kalmeman, Knetsch, and Thaler (1990) Ran studies to determine whether the Endowment effect survives when subjects face market disciplines and have a chance to learn.
Suggests that the low volume of trade is produced mainly by owners reluctance to part with their endowment rather than buyers unwillingness to part with their cash.
www.uoregon.edu /~sdhodges/458regrt.htm   (2118 words)

 BrothersJudd Blog: WHO SAID DARWINISM WAS BANAL?   (Site not responding. Last check: 2007-11-02)
Economists are interested in and puzzled by the endowment theory because it goes against classical economic theory of people behaving entirely rationally where money is concerned.
Professor Huck and his colleagues also devised mathematical equations to demonstrate that the downside of having too much of whatever it is you own, be it corn, meat or mugs, is always less significant than the considerable upside of being able to secure a good deal in any bargaining operation.
That would be a better test of the "endowment effect", since that would be the only hold that a non-favorite sweater would have on us.
www.brothersjudd.com /blog/archives/2005/10/who_said_darwin.html   (772 words)

 The Endowment Effect at MIT   (Site not responding. Last check: 2007-11-02)
Furthermore, these investment swings have been used to justify painful cuts in budget and staff, so that the endowment has been a cause of fluctuations in the budget instead of smoothing them out.
In finance, the “endowment effect” means having a reference, and that relative to that reference losses are felt more strongly than gains.
Our endowment reference should be a conservative investment strategy, coupled with a distribution strategy whose first priority is to avoid cutbacks in programmed budget outlays.
www-tech.mit.edu /V124/N26/WHartnett2.26c.html   (481 words)

 Masood Mortazavi's Weblog
I mentioned endowment effect in my last bit on music-on-the-go but I didn't really give an accurate description of it.
For example, when explaining the endowment effect, one should probably also take into account measurement costs (a kind of transaction cost) of the sort Douglass C. North has analyzed in his writings.
For example, the reason behind the endowment effect could be that people know the characteristic of what they have because they have used it and know its behavior.
blog.sun.com /roller/page/MortazaviBlog?entry=endowment_effect_and_transaction_costs   (893 words)

 Article Abstract   (Site not responding. Last check: 2007-11-02)
This study examines the endowment effect in the context of evaluating information.
Theoretically, value judgments that affect the demand for information are influenced by ownership rights, a phenomenon known as the endowment effect in trading situations.
This preference is attributed to risk aversion rather than to loss aversion, which is the most widely accepted explanation of the endowment effect.
jais.isworld.org /articles?vol=4&art=5   (336 words)

 [No title]
The ‘mug endowment’ group was then offered to swap their mug for chocolate while the ‘chocolate endowment’ group was offered the chance of swapping their chocolate for a mug.
In effect the smooth (but not straight line) curve linking measures of WTA to tolerate a unit loss with measures of WTP to obtain a unit gain becomes kinked at the reference point (see Figure 1).
The amount that the individual is WTA to forgo a gain is measured from the point A (with endowment Q0) and is the amount AD (that amount which would move the individual onto the higher utility level as viewed from point A, i.e.
www.uea.ac.uk /env/all/teaching/envecon/ijblectures/topic6part4.doc   (1996 words)

 SSRN-The Willingness to Pay/Willingness to Accept Gap, the Endowment Effect, Subject Misconceptions and Experimental ...
We conduct experiments to explore the possibility that subject misconceptions, as opposed to a particular theory of preferences referred to as the "endowment effect," account for reported gaps between willingness to pay ("WTP") and willingness to accept ("WTA").
In addition, we find no support that an observed gap can be convincingly interpreted as an endowment effect and conclude that further evidence is required before convincing interpretations of any observed gap can be advanced.
Zeiler, Kathryn and Plott, Charles R., "The Willingness to Pay/Willingness to Accept Gap, the Endowment Effect, Subject Misconceptions and Experimental Procedures for Eliciting Valuations".
papers.ssrn.com /sol3/papers.cfm?abstract_id=615861   (503 words)

 A Bird in the hand: Why we overvalue what we have and undervalue what we want   (Site not responding. Last check: 2007-11-02)
It is widely known that individuals often require more money to part with an item than they would pay to acquire the same item.
But the psychological underpinnings of the "endowment effect" have never been fully explained.
Thus, the endowment effect is not a motivated shift in response language (e.g., sellers should quote high and buyers should quote low) but appears to reflect biased information processing," explain researchers from the University of Iowa in the December 2005 issue of the Journal of Consumer Research.
www.eurekalert.org /pub_releases/2005-11/uocp-abi111405.php   (260 words)

 What have we learnt about Loss Aversion and Endowment Effects? Still an anomaly?
This paper presents an insight into the theoretical and empirical literature of Loss Aversion and Endowment Effect.
I conclude that Loss Aversion and Endowment Effects truly matter and their existence must not be taken into account just as an anomaly or puzzle, but as part of a new theory in itself, leading to new questions and challenges for future economic research.
"Experimental Tests of the Endowment Effect and the Coase Theorem," Journal of Political Economy, University of Chicago Press, vol.
ideas.repec.org /p/wpa/wuwpmi/0307005.html   (477 words)

Endowment effect on part of British: would risk more to keep ME than to take it
The endowment effect states that Britain would risk more to maintain its influence in the Middle East than it would spend to gain such an influence.
Endowment Effect - Would risk more to keep something than you would pay to gain it in the first place.
www-personal.umich.edu /~rtanter/W97PS353NOTES/item-84.htm   (1534 words)

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