The evolution of the endowment effect

How the Custom Suppresses the Endowment Effect: Exchange Paradigm in Kanak Country

In this paper, Knetsch's exchange paradigm is analyzed from the perspective of pragmatics and social norms. In this paradigm the participant, at the beginning of the experiment, receives an object from the experimenter and at the end, the same experimenter offers to exchange the received object for an equivalent object. The observed refusal to exchange is called the endowment effect. We argue that this effect comes from an implicature made by the participant about the experimenter's own expectations. The participant perceives the received item as a gift, or as a present, from the experimenter that cannot be exchanged as stipulated by the social norms of western politeness common to both the experimenter and the participant. This implicature, however, should not be produced by participants from Kanak culture for whom the perceived gift of a good will be interpreted as a first act of exchange based on gift and counter-gift. This exchange is a natural, frequent, balanced, and indispensable act for all Kanak social bonds whether private or public. Kanak people also know the French social norms that they apply in their interactions with French people living in New Caledonia. In our experiment, we show that when the exchange paradigm takes place in a French context, with a French experimenter and in French, the Kanak participant is subject to the endowment effect in the same way as a French participant. On the other hand, when the paradigm is carried out in a Kanak context, with a Kanak experimenter and in the vernacular language, or in a Kanak context that approaches the ceremonial of the custom, the endowment effect is no longer observed. The same number of Kanak participants accept or refuse to exchange the endowed item. These results, in addition to providing a new explanation for the endowment effect, highlight the great flexibility of decisions according to social-cultural context.

Economics and Epicycles

I aver that standard economics as a model of human behavior is as incorrect in 2017 (after Thaler) as geocentrism was as a model of celestial behavior in 1617 (after Galileo). Behavioral economic studies that have exposed the paradoxes and anomalies in standard economics are akin to epicycles on geocentrism. Just as no amount of epicycles could salvage geocentrism as a model of celestial behavior because it was fundamentally incorrect, no amount of behavioral economic adjustments could salvage standard economics as a model of human behavior because it is fundamentally incorrect. Many of the cognitive biases exhibited by humans are shared by other species, so not only are human actors Humans (as opposed to Econs), but nonhuman animals as phylogenetically distant from humans as ants and locusts are also Humans. Evolutionary biology as a model of human behavior can explain many of the hitherto unexplained cognitive biases and provide a unifying model of human behavior currently lacking in behavioral economics.