Endowment Effect and Refutation of the Coase Theorem

Abstract:

The article explains the necessity of the application of psychological methods in the context of the modern economic theory. The author discusses the meaning of endowment effect, which is considered one of the most famous and important behavioral anomaly discovered by the Nobel Memorial Prize recipient Richard Thaler (2017). The article contains disquisition about the endowment effect validation proved by experimental results and empirical analysis. The author focuses on the explanation of behavioral analysis of the Coase theorem. Therefore, the article considers an attempt to prove the invalidity of such a fundamental thesis of institutional economics and economical law analysis. I emphasize that experiment results, by contrast, comply with the Coase theorem with the assumption that the endowment effect occurs through high transaction costs in the case of market exchange between the participants of the experiment. The article contains other critical points describing the inaccuracy of refutation of the Coase theorem made by the representatives of behavioral economics.