A TEST OF COMPETING EXPLANATIONS OF COMPENSATION DEMANDED |
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| Authors: | John K Horowitz K E Mcconnell John Quiggin |
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| Institution: | Associate Professor, University of Maryland, College Park, Phone 1–301-405-1273 Fax 1–301-314-9091, E-mail;University of Maryland, College Park Phone 1–301-405-1282, Fax 1–301-314-9091 E-mail;James Cook University, Townsville, Queensland, Australia, Phone 61-7-47814798 Fax 61-7-47814019 E-mail |
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| Abstract: | We find that prospect theory behavior is significantly more prevalent than utility theory behavior in experiments involving multiple, real items. In the experiments, subjects were endowed with three items and asked the minimum payments they required to be willing to return one, two, or three of them. Our key observation is that prospect theory implies concavity of compensation demanded, whereas utility theory implies convexity. We examine whether the compensation demanded is convex or concave in the number of items returned. ( JEL C91) |
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