Abstract
A vast body of experimental studies in psychology and economics finds that individuals tend to value goods more and demand higher prices when they own the goods than they would be willing to pay for the good when they do not already own it. Although research on the endowment effect has been done for more than three decades, it’s theory, empirical methodology, results, and implications continue to be topics of intense discussion among economists, lawyers and psychologists. In this entry, we review the theoretical framework and empirical evidence on the endowment effect and highlight some implications for law and economics research.
This is a preview of subscription content, log in via an institution.
References
Arlen J, Talley E (2008) Introduction: experimental law and economics. In: Arlen J, Talley E (eds) Experimental law and economics. Edward Elgar, Northampton, pp xv–lxi
Bar-Hillel M, Neter E (1996) Why are people reluctant to exchange lottery tickets? J Pers Soc Psychol 70:17–27
Brown TC (2005) Loss aversion without the endowment effect, and other explanations for the WTA-WTP disparity. J Econ Behav Organ 57:367–379
Cialdini RB, Trost MR, Newsom JT (1995) Preference for consistency: the development of a valid measure and the discovery of surprising behavioral implications. J Pers Soc Psychol 69:318–328
Coursey DL, Hovis JL, Schultze WD (1987) The disparity between willingness to accept and willingness to pay measures of value. Q J Econ 102:670–690
Depoorter B, Tontrup S (2012) How law frames moral intuitions: the expressive effect of specific performance. Ariz Law Rev 54:673–717
Dubourg WR, Jones-Lee MW, Loomes G (1994) Imprecise preferences and the WTP-WTA disparity. J Risk Uncertainty 9:115–133
Festinger L (1957) A theory of cognitive dissonance. Stanford University Press, Stanford
Gilovich T, Medvec VH (1995) The experience of regret: what, when, and why. Psychol Rev 102:379–395
Harbaugh WT, Krause K, Vesterlund L (2001) Are adults better behaved than children? Age, experience, and the endowment effect. Econ Lett 70:175–181
Hartman R, Doane MJ, Woo CK (1991) Consumer rationality and the status quo. Q J Econ 106:141–162
Hoeppner S (2012) The unintended consequence of doorstep consumer protection: surprise, reciprocation, and consistency. Eur J Law Econ 38:247–276
Horowitz JK, McConnell KE (2002) A review of WTA/WTP studies. J Environ Econ Manag 44:426–447
Isoni A, Loomes G, Sugden R (2011) The willingness to pay-willingness to accept gap, the “endowment effect”, subject misconceptions, and experimental procedures for eliciting valuations: comment. Am Econ Rev 101:991–1011
Issacharoff S (1998) Can there be a behavioral law and economics? Vanderbilt Law Rev 91:1729–1745
Johnson EJ, Hershey J, Meszaros J, Kunreuther H (1993) Framing, probability distortions, and insurance decisions. J Risk Uncertainty 7:35–51
Johnson EJ, Haubl G, Keinan A (2007) Aspects of endowment: a query theory account of loss aversion for simple objects. J Exp Psychol Learn Mem Cogn 33:461–474
Jolls C, Sunstein CR, Thaler RH (1998) A behavioral approach to law and economics. Stanford Law Rev 50:1471–1550
Kahan M, Klausner M (1996) Path dependence in corporate contracting: increasing returns, herd behavior and cognitive biases. Wash Univ Law Q 74:347–366
Kahneman D, Tversky A (1979) Prospect theory: an analysis of decision under risk. Econometrica 47:263–292
Kahneman D, Knetsch JL, Thaler RH (1990) Experimental tests of the endowment effect and the coase theorem. J Polit Econ 98:1325–1348
Kahneman D, Knetsch JL, Thaler RH (1991) The endowment effect, loss aversion, and status quo bias. J Econ Perspect 5:193–206
Klass G, Zeiler K (2013) Against endowment theory: experimental economics and legal scholarship. UCLA Law Rev 61:2–64
Knetsch JL (1989) Endowment effect and evidence of nonreversible indifference curves. Am Econ Rev 79:1277–1284
Knetsch JL, Sinden JA (1984) Willingness to pay and compensation demanded: experimental evidence of an unexpected disparity in measures of value. Q J Econ 99:507–521
Knetsch JL, Sinden JA (1987) The persistence of evaluation disparities. Q J Econ 102:691–695
Knetsch JL, Wong WK (2009) The endowment effect and the reference state: evidence and manipulations. J Econ Behav Organ 71:407–413
Knez P, Smith VL, Williams AW (1985) Individual rationality, market rationality, and value estimation. Am Econ Rev 75:397–402
Korobkin RB (1998a) The status quo bias and contract default rules. Cornell Law Rev 83:608–687
Korobkin RB (1998b) Inertia and preference in contract negotiation: the psychological power of default rules and form terms. Vanderbilt Law Rev 51:1583–1651
Korobkin RB (2003) The endowment effect and legal analysis. Northwestern Univ Law Rev 97:1227–1293
Korobkin RB, Ulen TS (2000) Law and behavioral science: removing the rationality assumption from law and economics. Calif Law Rev 88:1051–1144
Landman J (1987) Regret and elation following action and inaction: affective responses to positive versus negative outcomes. Pers Soc Psychol Bull 13:524–536
Lin CH, Chuang SC, Kao DT, Kung CY (2006) The role of emotions in the endowment effect. J Econ Psychol 27:589–597
List JA (2003) Does market experience eliminate market anomalies? Q J Econ 118:47–71
List JA (2004) Neoclassical theory versus prospect theory: evidence from the market place. Econometrica 72:615–625
Loewenstein GF, Issacharoff S (1994) Source dependence in the evaluation of objects. J Behav Decis Mak 7:157–168
Martinez LF, Zeelenberg M, Rijsman JB (2011) Regret, disappointment and the endowment effect. J Econ Psychol 32:962–968
Morewedge CK, Shu LL, Gilbert DT, Wilson DT (2009) Bad riddance or good rubbish? Ownership and not loss aversion causes the endowment effect. J Exp Soc Psychol 45:947–951
Nayakankuppam D, Mishra H (2005) The endowment effect: rose-tinted and dark-tinted glasses. J Consum Res 32:390–395
Plott CR, Zeiler K (2005) The willingness to pay-willingness to accept gap, the “endowment effect”, subject misconceptions, and experimental procedures for eliciting valuations. Am Econ Rev 95:530–545
Plott CR, Zeiler K (2007) Exchange asymmetries incorrectly interpreted as evidence of endowment effect theory and prospect theory? Am Econ Rev 97:1449–1466
Plott CR, Zeiler K (2011) The willingness to pay-willingness to accept gap, the “endowment effect”, subject misconceptions, and experimental procedures for eliciting valuations: reply. Am Econ Rev 101:1012–1028
Rachlinksy JJ, Jourden F (1998) Remedies and the psychology of ownership. Vanderbilt Law Rev 51:1541–1582
Samuelson W, Zeckhauser R (1988) Status quo bias in decision making. J Risk Uncertainty 1:7–59
Shogren JF, Shin SY, Hayes DJ, Kliebenstein JB (1994) Resolving differences in willingness to pay and willingness to accept. Am Econ Rev 84:255–270
Thaler RH (1980) Toward a positive theory of consumer choice. J Econ Behav Organ 1:39–60
van Dijk E, van Knippenberg D (1996) Buying and selling exchange goods: loss aversion and the endowment effect. J Econ Psychol 17:517–524
van Dijk E, van Knippenberg D (1998) Trading wine: on the endowment effect, loss aversion, and the comparability of consumer goods. J Econ Psychol 19:485–495
Zhang Y, Fishbach A (2005) The role of anticipated emotions in the endowment effect. J Consum Psychol 15:316–324
Author information
Authors and Affiliations
Corresponding authors
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2014 Springer Science+Business Media New York
About this entry
Cite this entry
Depoorter, B., Hoeppner, S. (2014). Endowment Effect. In: Backhaus, J. (eds) Encyclopedia of Law and Economics. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-7883-6_545-1
Download citation
DOI: https://doi.org/10.1007/978-1-4614-7883-6_545-1
Received:
Accepted:
Published:
Publisher Name: Springer, New York, NY
Online ISBN: 978-1-4614-7883-6
eBook Packages: Springer Reference Economics and FinanceReference Module Humanities and Social SciencesReference Module Business, Economics and Social Sciences