Turning the WTP-WTA Gap Off and On : Subject Samples and Endowment Effect

Endowment effect is a significant finding in behavioral decision theory. Loss aversion has long been regarded as its cause. This paper argues that many observed endowment effects are due to “sampling errors”, and thus loss aversion cannot serve as an explanation. We propose a special structure of supply and demand curves of the population, among which specific subjects – people whose WTPs are the highest among the population – can overcome endowment effect. A series of experiments are conducted to turn the WTP-WTA gap off and on by simply drawing different subject samples. This study provides a novel understanding of endowment effect and the special structure of market participants