In the Long Run We All Trade: Reference Dependence in Dynamic Economies

Monday, January 28, 2013 ( 2:00 pm to 3:00 pm )

Location: Babbio 104

In the Long Run We All Trade: Reference Dependence in Dynamic Economies

Sean Crockett, Assistant Professor Baruch College, City University of New York



We explore the impact of reference dependence on trade in dynamic economies, both theoretically and experimentally. We first show that under plausible axioms, dynamic economies generate a momentum effect capable of reducing or eliminating the initial trade-dampening impact of the endowment effect over time. We then introduce a novel experiment designed to test this prediction. Our results confirm that subjects' willingness to trade dramatically increases between the first and second period of our experiment as predicted by the theory. The data also suggest that subjects become increasingly sophisticated over the course of the experiment leading to stronger erosion of the endowment effect than our theory predicts.



Sean Crockett is an Assistant Professor in the Department of Economics and Finance at Baruch College, City University of New York. He earned his Ph.D. in Economics from Carnegie Mellon University in 2004 and was a Postdoctoral Scholar in the Social and Information Sciences Lab at Caltech prior to joining Baruch in 2006.

His research lies at the intersection of experimental economics, behavioral economics, and general equilibrium theory. In much of this work he seeks to identify and model individual behavior, and when this behavior deviates from neoclassical theory, he studies how the aggregation of these deviations impacts outcomes (e.g., prices and quantities) in multiple-good markets. Specific topics he has investigated include out-of-equilibrium market dynamics, asset price bubbles, learning comparative advantage, market consequences of the endowment effect, and the interaction of reference dependence and risk preferences.

Email [email protected] for more information