An experimental investigation of the impact of experience on loss aversion

Lindsay, Luke (2009) An experimental investigation of the impact of experience on loss aversion. PhD thesis, University of Nottingham.

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Abstract

The first chapter introduces the thesis and reviews the literature on loss aversion, the endowment effect and the willingness to pay/willingness to accept gap, and the effects of experience.

The second chapter reports an extended version of Knetsch's exchange of goods experiment to explore how different types of experience influence the endowment effect. The experiment has four treatments, which compare the behaviour of subjects with experience of consuming, owning, and choosing goods to a control group. The results are consistent with earlier studies in that an endowment effect is observed; however, the strength of the effect is less than in earlier studies and differs between treatments. In particular, there is a significantly stronger endowment effect in the treatments in which the endowment is acquired in two steps rather than one step.

The third chapter reports a repeated market experiment in which subjects buy and sell lotteries under symmetric and asymmetric information. Buying and selling bids and prices are compared. A gap between buying and selling prices decays under symmetric information but persists under asymmetric information. Furthermore, there are spillover effects. When the regime switches between symmetric and asymmetric information, subjects do not immediately adjust their behaviour. The results are interpreted as evidence that behaviour is driven by heuristics.

The fourth chapter reports another repeated market experiment in which subjects buy and sell lotteries. How the lotteries’ odds are presented and whether the lottery gets resolved after each trial vary between treatments. Among the findings is that the gap between buying and selling bids decays when lotteries are not resolved each trial but persists when they are.

The final chapter summarises the findings of the three experiments and identifies common patterns. Directions for future experimental and theoretical research are suggested. Finally, implications for policy are discussed.

Item Type:Thesis (PhD)
Supervisors:Humphrey, S.J.
Starmer, C.V.
Faculties/Schools:UK Campuses > Faculty of Social Sciences, Law and Education > School of Economics
ID Code:748
Deposited By:Mr Luke Lindsay
Deposited On:07 Oct 2009 14:31
Last Modified:07 Oct 2009 14:31

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