HEADS OR TAILS? THE EFFECT OF FLIPPING A COIN ON EXCHANGE ASYMMETRY IN THE FIELD.

Abstract

In the classic exchange experiment, it is widely reported that people trade less frequently than what the neoclassical demand theory predicts. Such observation has been largely attributed to the ‘endowment effect’. Past research has studied various factors affecting the presence and extent of exchange asymmetry in the classic exchange experiment. The aim of this study is to explore a novel factor in yet another alternate environment: to investigate how the inclusion of an option to flip a coin affects exchange asymmetry. Using a between-subjects experimental design, 160 student participants are approached in the field where a group of them is offered the additional choice to flip a coin to finalise their exchange decisions involving $2 and a lottery ticket. Comparing the results between both conditions, we find that the introduction of a coin flip reduces exchange asymmetry, but only among the participants who are endowed with a lottery ticket.