Behavioral and Experimental Economics Assignment 1.
1. Consider this endowment experiment: Give 50 people an apple, and 50 people an orange. People can trade in their fruit with the experimenter for the other kind. Suppose that, on average, x % of people prefer apples to oranges.
A) Assume that there is no endowment effect. Show mathematically that regardless of what x is, 50% of people should trade.
B) In practice, about how many people actually trade in an experiment like this? Explain, but as a skeptic, of the idea that the above experimental result actually shows that there’s an endowment effect.
2. Consider the diagram below.