Bridging the Property-Contract Divide: Testing the Endowment Effect in Law (original) (raw)

The Endowment Effect and Legal Analysis

SSRN Electronic Journal, 2002

21 Note that it does not matter whether the market price is high or low. If the market price is set very high, a large majority of each group might choose money over the good, and if the market price is set very low, a large majority might choose the good. But the percentage of subjects in each group choosing the good should be the same, within the range of random statistical variation.

Bridging the Property-Contract Divide: Testing the Endowment Effect in Contract Law

2018

This Article examines the relationship between contract and property law by examining the extent to which parties tend to conceptualize and treat contracts as property. In doing so, this Article seeks to answer a question residing at the intersection between contract and property law, namely, whether the promises underlying contracts merely constitute a form - an empty vessel into which substantive property rights are poured - or whether they constitute something more substantial, perhaps even a species of property itself. If it is the latter, which I suspect it is, this suggests that, at the very least, one can understand contract law and some of its more pressing problems much better (such as whether to allow efficient breach, or whether to continue the common law's expressed preference for money damages over specific performance) by viewing them, at least in part, through a property-based lens. More ambitiously, if the promises in contracts can be shown to be valued as a type...

Explanations of the endowment effect: an integrative review

Trends in cognitive sciences, 2015

The endowment effect is the tendency for people who own a good to value it more than people who do not. Its economic impact is consequential. It creates market inefficiencies and irregularities in valuation such as differences between buyers and sellers, reluctance to trade, and mere ownership effects. Traditionally, the endowment effect has been attributed to loss aversion causing sellers of a good to value it more than buyers. New theories and findings - some inconsistent with loss aversion - suggest evolutionary, strategic, and more basic cognitive origins. In an integrative review, we propose that all three major instantiations of the endowment effect are attributable to exogenously and endogenously induced cognitive frames that bias which information is accessible during valuation.

What Can I Get For It? A Theoretical and Empirical Re-Analysis of the Endowment Effect

2011

We hypothesise and confirm a previously unnoticed pattern within preexisting data on the endowment effect, collected via seven experiments employing the original design. Subjects with low valuations in binary choice relative to other subjects set a proportionally higher willingness to accept. Those with high valuations set a proportionally lower willingness to pay. The results challenge current theories, including models of reference dependent preferences. The findings imply that buyers and sellers consider not only their own preferences, but also their perceptions of potential deals. We propose a model of optimal exchange that rationalises this behaviour and accounts for the new findings.

Does the Endowment Effect Justify Legal Intervention? The Debiasing Effect of Institutions

SSRN Electronic Journal, 2014

ABSTRACT We claim that the endowment effect rarely justifies legal intervention in private ordering. We present the first theory, to our knowledge, to explain how institutions inhibit the endowment effect without altering people’s rights to their entitlements. The endowment effect is substantially caused by anticipated regret. We show that people experience regret only when they feel responsible for the decision and can mute regret by trading through institutions that let them share responsibility with others. As entitlement holders typically transact through institutions, we expect most people to make unbiased trading decisions in real markets. We test two common institutions—agency relationships and voting—that divide responsibility between multiple actors. Each caused most subjects to debias and trade in our study. We also show that people intentionally debias by employing institutions in order to share responsibility. Thus, when people can freely transact, private ordering generally overcomes the endowment effect.

The endowment effect and the reference state: Evidence and manipulations

Journal of Economic Behavior & Organization, 2009

Recent reports suggest that the "endowment effect" may be due to conditions under which it is observed and explained by incentives long recognized in standard theory. Evidence from new experiments, reported here, provides empirical support for the role of the economic environment on people's perceived reference state and consequently on their valuations, as suggested by . A model of referencedependent preferences. Quarterly Journal of Economics 121, , and indicates that the disappearance of the valuation disparity is more likely due instead to conditions that weaken the perception of reference states. Further, these conditions appear to be poor approximations of those that prevail in most cases for which valuations are normally made.