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Learning to Like What You Have - Explaining the Endowment Effect

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  • Steffen Huck
  • Georg Kirchsteiger
  • Jörg Oechssler

Abstract

The endowment effect describes the fact that people demand much more to give up an object than they are willing to spend to acquire it. The existence of this effect has been documented in numerous experiments. We attempt to explain this effect by showing that evolution favors individuals whose preferences embody an endowment effect. The reason is that an endowment effect improves one's bargaining position in bilateral trades. We show that for a general class of evolutionary processes strictly positive endowment effects will survive in the long run.

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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse5_2003.pdf
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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse5_2003.

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Length: 24
Date of creation: Mar 2003
Date of revision:
Handle: RePEc:bon:bonedp:bgse5_2003

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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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Keywords: endowment effect; evolution; bargaining;

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References

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