1 / 25

Endowment Effects in The Wild (literally)

Endowment Effects in The Wild (literally). Why study animals and children?. Discussion. Brosnan et al. Endowment Effects in Chimpanzees. Similarities across species suggests a common evolutionary root.

overton
Download Presentation

Endowment Effects in The Wild (literally)

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Endowment Effects in The Wild (literally)

  2. Why study animals and children? • Discussion.

  3. Brosnan et al. Endowment Effects in Chimpanzees • Similarities across species suggests a common evolutionary root. • If we observe irrational decision-making patterns in chimps, maybe we can infer something about irrational decision-making in humans.

  4. Evolutionary Explanation for EE? • Some inclination to value goods one possessed over goods one might obtain through exchange may have been adaptive • Exchanges are fraught with the potential for defection • Particularly in the absence of reliable property rights and third-party enforcement mechanisms (i.e. No formal rules or legal institutions until modern times)

  5. Hypothesis and Test • Evolutionary relevant stimuli may elicit different responses in the chimps • Used food and non-food objects • Chimps were given three trials for each version: • 1. a choice between items (between two foods or between two non-foods) • 2. one trial each in which chimps were given one item (food or non-food) and allowed to exchange for the other of the same category An endowment effect could be concluded if there was a stronger tendency to maintain possession of an item than is expected based on separately-expreessed preferences.

  6. Subjects • 33 chimpanzees housed at the University of Texas • Food items: frozen fruit juice stick and a PVC pipe filled with peanut butter • Non-food items: a rubber bone dog chew toy and a knotted rope dog toy

  7. Prior Preferences and results for foods • 58% of the chimps preferred PB to juice • When endowed with the PB, 79% preferred to keep rather than exchange • Expect: 20% more of the popn than would be expected from the population-wide preference • 42% pref for juice • When endowed with juice, 58% of the chimps chose to keep it rather than exchange it. • This reflects an endowment effect of 15%

  8. Results for non-foods • Subjects showed a preference to exchange the object rather than an endowment effect • 74% of subjects preferred the bone over the rope • When endowed with the bone, subjects kept it only 16% of the time • When endowed with the rope, subjects kept it only 10% of the time.

  9. Harbaugh et al. Age and the EE • Goal: to examine the effect of changes in actual market experience on the endowment effect • Subject pool includes both 5-10 year-old grade school children as well as college undergraduates. • These give quite varying degrees of accumulated market experience across the subjects

  10. Experimental design • 125 kids from kindergarten, 3rd grade and 5th grade classrooms • 38 undergraduates in introductory economics classes • Subjects were given one good and then asked if they wanted to keep it or trade it for another. • The procedure was repeated for three of the four pairs of goods described in the table below.

  11. More on Experimental Design • Subjects were randomly divided • One group was given one good and the other group was given the other good • Along with the item, each subject was given a tag • A sample of the other good was passed around for inspection. • Subjects could then either keep their original good or trade it for the other (by putting a particular color tag on the good)

  12. Results • When given a choice between two goods, an endowment effect exists if the probability that a person chooses, say, good A is higher if they were initially endowed with good A than if they were endowed with good B. • “Endowment Boost”: the average across the two goods if the increase in the likelihood that a person chooses a good when they are endowed with it, relative to being endowed with the other good.

  13. Here’s how they calculated the “Endowment Boost” • If Pj|i denotes the probability of choosing good j when endowed wityhgood i, then the endowment boost equals:

  14. Children’s choices for each of the three pairs

  15. Results for children • For every good, the likelihood of choosing the good increases when the child is endowed with it. • Fisher’s exact test rejects the null hypothesis of no endowment effect for all pairs • The EE is quite large • Note that in Table 2, although A is not very popular relative to B, it was considerably more likely to be chosen when a subject was endowed with it than when not, and the same is true for good B. • For A and B children are 2.9 times more likely to choose the good they are endowed with than not.

  16. Next we look at Undergraduates • As with the children, an endowment effect exists for all three pairs of goods.

  17. Endowment Boosts By Age

  18. Discussion • Strong evidence for the existence of the EE in all subjects. • No evidence that the EE decreases with age • 5th graders are on average twice as old as kindergartners and have accumulated substantially more market experience but still the strength of the EE did not differ • Lack of difference is even more striking if we compare undergrads and children

  19. Implication • The EE is not a mistake or a transitory anomaly related to market experience.

More Related