Honors Theses

Date of Award

5-15-2019

Document Type

Undergraduate Thesis

Department

Economics

First Advisor

John Gardner

Relational Format

Dissertation/Thesis

Abstract

The purpose of this thesis is to illustrate the impact of an “endowment frame” on risk behavior in games of asymmetric information. Akerlof’s (1970) description of a “market for lemons” led to the creation of a modified screening game into which the endowment frame could be placed. The game was subsequently computerized and administered to 18 test subjects in the Mississippi Experimental Research Laboratory. At the beginning of the experiment, test subjects were randomly assigned to either a control or treatment group. Each participant played 20 rounds of the game and was compensated based on his or her performance. The term “endowment frame” refers to the $0.50 endowment that was granted to treatment group participants at the beginning of each round. Despite the presence of this endowment, the payoff structure was designed so that the expected value of both bid types, high and low, were the same for both experimental conditions. Therefore, in theory, both groups should have produced the same bid selection profiles. However, empirically the treatment group subjects were more likely to select the lower, “riskier” bid. This is consistent with the presence of an endowment effect.

Available for download on Wednesday, September 02, 2020

Included in

Economics Commons

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