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Empirical Exercises 151

E3.2 A consumer is given the chance to buy a baseball card for $1, but he
declines the trade. If the consumer is now given the baseball card, will
he be willing to sell it for $1? Standard consumer theory suggests yes, but
behavioral economists have found that “ownership” tends to increase the
value of goods to consumers. That is, the consumer may hold out for some
amount more than $1 (for example, $1.20) when selling the card, even
though he was willing to pay only some amount less than $1 (for example,
$0.88) when buying it. Behavioral economists call this phenomenon the
“endowment effect.” John List investigated the endowment effect in a ran-
domized experiment involving sports memorabilia traders at a sports-card
show. Traders were randomly given one of two sports collectibles, say good
A or good B, that had approximately equal market value.1 Those receiv-
ing good A were then given the option of trading good A for good B with
the experimenter; those receiving good B were given the option of trading
good B for good A with the experimenter. Data from the experiment
and a detailed description can be found on the textbook website, www
.pearsonglobaleditions.com/Stock_Watson, in the files Sportscards and
Sportscards_Description.2

a. i. Suppose that, absent any endowment effect, all the subjects pre-
fer good A to good B. What fraction of the experiment’s subjects
would you expect to trade the good that they were given for the
other good? (Hint: Because of random assignment of the two treat-
ments, approximately 50% of the subjects received good A and
50% received good B.)

ii. Suppose that, absent any endowment effect, 50% of the subjects
prefer good A to good B, and the other 50% prefer good B to
good A. What fraction of the subjects would you expect to trade
the good that they were given for the other good?

iii. Suppose that, absent any endowment effect, X% of the subjects
prefer good A to good B, and the other (100 – X)% prefer good
B to good A. Show that you would expect 50% of the subjects to
trade the good that they were given for the other good.

1Good A was a ticket stub from the game in which Cal Ripken, Jr., set the record for consecutive
games played, and good B was a souvenir from the game in which Nolan Ryan won his 300th game.
2These data were provided by Professor John List of the University of Chicago and were used in his
paper “Does Market Experience Eliminate Market Anomalies,” Quarterly Journal of Economics,
2003, 118(1): 41–71.