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Endowment as a blessing

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  • Frenkel, Sivan
  • Heller, Yuval
  • Teper, Roee

Abstract

Experimental evidence and field data suggest that agents hold two seemingly unrelated biases: failure to account for the fact that the behavior of others reflects their private information (“winner's curse”), and a tendency to value a good more once it is owned (“endowment effect”). In this paper we propose that these two phenomena are closely related: the biases fully compensate for each other in various economic interactions, and induce an “as-if rational” behavior. We pay specific attention to barter trade, of the kind that was common in prehistoric societies, and suggest that the endowment effect and the winner's curse could have jointly survived natural selection together.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39430.

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Date of creation: 30 Apr 2012
Date of revision: 30 Apr 2012
Handle: RePEc:pra:mprapa:39430

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Keywords: Bounded Rationality; Endowment Effect; Winner's Curse; Cursed Equilibrium; Evolution;

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References

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Cited by:
  1. Heller, Yuval & Winter, Eyal, 2013. "Rule Rationality," MPRA Paper 48746, University Library of Munich, Germany.
  2. Heller, Yuval, 2012. "Three steps ahead," MPRA Paper 39429, University Library of Munich, Germany.

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