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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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  • Frenkel, Sivan & Heller, Yuval & Teper, Roee, 2012. "Endowment as a blessing," MPRA Paper 39430, University Library of Munich, Germany, revised 30 Apr 2012.
    • Handle: RePEc:pra:mprapa:39430
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    Cited by:

    1. Häfner, Samuel, 2018. "Stable biased sampling," Games and Economic Behavior, Elsevier, vol. 107(C), pages 109-122.
    2. Yuval Heller & Eyal Winter, 2016. "Rule Rationality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(3), pages 997-1026, August.
    3. Jakub Steiner & Colin Stewart, 2016. "Perceiving Prospects Properly," American Economic Review, American Economic Association, vol. 106(7), pages 1601-1631, July.
    4. Heller, Yuval, 2015. "Three steps ahead," Theoretical Economics, Econometric Society, vol. 10(1), January.
    5. Steiner, Jakub & Stewart, Colin, 2014. "Perceiving Prospects Properly," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-39, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).

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    More about this item

    Keywords

    Bounded Rationality; Endowment Effect; Winner's Curse; Cursed Equilibrium; Evolution;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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