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Learning to Like What You Have - Explaining the Endowment Effect

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Author Info
Steffen Huck
Georg Kirchsteiger
Jörg Oechssler

Additional information is available for the following registered author(s):

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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Publisher 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
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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
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Web page: http://www.bgse.uni-bonn.de/index.php?id=494

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Related research
Keywords: endowment effect; evolution; bargaining;

Other versions of this item:

Find related papers by JEL classification:
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
D00 - Microeconomics - - General - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Sethi, Rajiv & Somanathan, E., 2001. "Preference Evolution and Reciprocity," Journal of Economic Theory, Elsevier, vol. 97(2), pages 273-297, April. [Downloadable!] (restricted)
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    Other versions:
  6. Crawford, Vincent P. & Varian, Hal R., 1979. "Distortion of preferences and the Nash theory of bargaining," Economics Letters, Elsevier, vol. 3(3), pages 203-206. [Downloadable!] (restricted)
  7. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
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  13. Huck, Steffen & Oechssler, Jorg, 1999. "The Indirect Evolutionary Approach to Explaining Fair Allocations," Games and Economic Behavior, Elsevier, vol. 28(1), pages 13-24, July. [Downloadable!] (restricted)
    Other versions:
  14. repec:cup:cbooks:9780521576475 is not listed on IDEAS
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  18. Iris Bohnet & Bruno S. Frey & Steffen Huck, . "More Order with Less Law: On Contract Enforcement, Trust, and Crowding," IEW - Working Papers iewwp052, Institute for Empirical Research in Economics - IEW. [Downloadable!]
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    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Joerg Oechssler & Frank Riedel, 1998. "Evolutionary Dynamics on Infinite Strategy Spaces," Game Theory and Information 9805002, EconWPA, revised 12 May 1998. [Downloadable!]
    Other versions:
  2. repec:att:wimass:19199828 is not listed on IDEAS
  3. Aviad Heifetz & Yossi Spiegel, 2000. "On the Evolutionary Emergence of Optimism," Discussion Papers 1304, Northwestern University, Center for Mathematical Studies in Economics and Management Science. [Downloadable!]
  4. Biel, Anders & Johansson-Stenman, Olof & Nilsson, Andreas, 2006. "Emotions, Morality and Public Goods: The WTA-WTP Disparity Revisited," Working Papers in Economics 193, Göteborg University, Department of Economics. [Downloadable!]
  5. Werner Güth & Loreto Llorente Erviti & Anthony Ziegelmeyer, 2006. "Asymmetric Information without Common Priors: An Indirect Evolutionary Analysis of Quantity Competition," Papers on Strategic Interaction 2006-37, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  6. Riedl, A. & Vyrastekova, J., 2002. "Social preference in three-player ultimatum game experiments," Discussion Paper 5, Tilburg University, Center for Economic Research. [Downloadable!]
  7. William H. Sandholm, 2001. "Preference Evolution, Two-Speed Dynamics, and Rapid Social Change," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(3), pages 637-679, July. [Downloadable!] (restricted)
  8. Steffen Huck & Joerg Oechssler, 1995. "The Indirect Evolutionary Approach to Explaining Fair Allocations," Game Theory and Information 9507001, EconWPA, revised 27 Aug 1998. [Downloadable!]
    Other versions:
  9. Schunk, Daniel, 2005. "Search behaviour with reference point preferences:," Sonderforschungsbereich 504 Publications 05-12, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim. [Downloadable!]
  10. Plott, Charles & Zeiler, Kathryn, 2005. "Asymmetries in exchange behavior incorrectly interpreted as evidence of prospect theory," Working Papers 1230, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  11. Thomas Norman, 2004. "Dynamically Stable Preferences," Economics Series Working Papers 207, University of Oxford, Department of Economics. [Downloadable!]
  12. Florian Englmaier & Arno Schmöller, 2008. "Reserve Price Formation in Online Auctions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  13. Peter R. Mueser & Jay K. Dow, 1998. "Experimental Evidence on the Divergence Between Measures of Willingness to Pay and Willingness to Accept--The Role of Value Uncertainty," Experimental 9803001, EconWPA. [Downloadable!]
  14. Burkhard C. Schipper, 2005. "The Evolutionary Stability of Optimism, Pessimism and Complete Ignorance," Bonn Econ Discussion Papers bgse35_2005, University of Bonn, Germany. [Downloadable!]
    Other versions:
  15. Heifetz, Aviad & Spiegel, Yossi, 2000. "On the Evolutionary Emergency of Optimism," Working Papers 1104, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  16. Jose Apesteguia & Miguel Ballester, 2009. "A theory of reference-dependent behavior," Economic Theory, Springer, vol. 40(3), pages 427-455, September. [Downloadable!] (restricted)
    Other versions:
  17. Munro, Alistair & Ferreira De Sousa, Yannick, 2008. "Truck, barter and exchange versus the endowment effect: virtual field experiments in an online game environment," MPRA Paper 8977, University Library of Munich, Germany. [Downloadable!]
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