http://www.truthonthemarket.com/2009/10/06/whats-wrong-with-the-endowment-effect/ Academic commentary on law, business, economics and more Sun, 14 Mar 2010 22:30:41 -0700 http://wordpress.org/?v=2.8.5 hourly 1 http://www.truthonthemarket.com/2009/10/06/whats-wrong-with-the-endowment-effect/comment-page-1/#comment-144968 ZH Mon, 19 Oct 2009 13:17:45 +0000 http://www.truthonthemarket.com/?p=2727#comment-144968 Just to add to something you mentioned, one of my professors, a generally heterodox friendly one, told me a couple of years ago that the problem with the behavioralists is that they put people in non-market situations with bias from experiment structure and use that to claim irrationalities and therefore policy interventions, yet when experimental economists do market experiments or computational economists use adaptive agent simulations analyze these allegedly irrational actors in a setting including markets and proper institutions, the irrationalities are frequently shown to be irrelevant to the overall performance and efficiency of the market. Basically, the behavioralists often ignore markets and institutions (besides for any experiment structure bias) and fail to show that their results are relevant in that context but are using their results to justify interventions into the real world which does have markets and institutions. Just to add to something you mentioned, one of my professors, a generally heterodox friendly one, told me a couple of years ago that the problem with the behavioralists is that they put people in non-market situations with bias from experiment structure and use that to claim irrationalities and therefore policy interventions, yet when experimental economists do market experiments or computational economists use adaptive agent simulations analyze these allegedly irrational actors in a setting including markets and proper institutions, the irrationalities are frequently shown to be irrelevant to the overall performance and efficiency of the market. Basically, the behavioralists often ignore markets and institutions (besides for any experiment structure bias) and fail to show that their results are relevant in that context but are using their results to justify interventions into the real world which does have markets and institutions.

]]> http://www.truthonthemarket.com/2009/10/06/whats-wrong-with-the-endowment-effect/comment-page-1/#comment-144934 dave Fri, 09 Oct 2009 12:39:00 +0000 http://www.truthonthemarket.com/?p=2727#comment-144934 I think it is up to 26 cites now, and I think that the ratio (no mentions/mentions) is changing pretty quick. Maybe alot of that effect you observed was the result of lag. I think it is up to 26 cites now, and I think that the ratio (no mentions/mentions) is changing pretty quick. Maybe alot of that effect you observed was the result of lag.

]]> http://www.truthonthemarket.com/2009/10/06/whats-wrong-with-the-endowment-effect/comment-page-1/#comment-144929 Geoffrey Manne Tue, 06 Oct 2009 21:45:01 +0000 http://www.truthonthemarket.com/?p=2727#comment-144929 Great post. My thought in reading the Carney blog and Gordon's response was that Carney made an odd sort of error. He took the results of the endowment effect studies seriously but criticized their characterization--which he replaced with another characterization that Gordon (rightly) found not to change the basic result that people behave irrationally from the point of view of our standard economic models. Even if Carney were right that the behavior is evolutionarily adaptive to life on the Savannah 10,000 years ago, that tells you little about its relevance to today's models of human behavior. So Gordon is left wondering what his re-characterization proves. Far more important is the point you make here: Whatever its cause, whatever its characterization, there needs to be sound evidence of the fact of the endowment effect before it matters for policy. Great post. My thought in reading the Carney blog and Gordon’s response was that Carney made an odd sort of error. He took the results of the endowment effect studies seriously but criticized their characterization–which he replaced with another characterization that Gordon (rightly) found not to change the basic result that people behave irrationally from the point of view of our standard economic models. Even if Carney were right that the behavior is evolutionarily adaptive to life on the Savannah 10,000 years ago, that tells you little about its relevance to today’s models of human behavior. So Gordon is left wondering what his re-characterization proves. Far more important is the point you make here: Whatever its cause, whatever its characterization, there needs to be sound evidence of the fact of the endowment effect before it matters for policy.

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