Endowment effects in bundles

Abstract

Behavioral experiments conducted so far to establish existence of endowment effect as propounded by prospect theorists typically endow subjects with a single good. In this paper we depart from this setting by giving subjects initial endowment bundles which consist of two goods: chocolates and pens and directly pit neo-classical theory against prospect theory by comparing divergence between willingness to pay (WTA) and willingness to accept (WTP). Using a novel experimental setting we examine the difference in such divergence for a group that is given physical bundles as endowment vis-à-vis a group which is asked to imagine the same initial endowment bundle in their possession. We find weak evidence of endowment effect. Moreover, we examine how endowment effect of a good changes when units of the other good in initial endowment bundle change. We find no statistically significant evidence of endowment effect of a good being sensitive to the number of units of the other good in initial endowment bundle.