Endowment as a blessing
AbstractExperimental 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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 39430.
Date of creation: 30 Apr 2012
Date of revision: 30 Apr 2012
Bounded Rationality; Endowment Effect; Winner's Curse; Cursed Equilibrium; Evolution;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-06-25 (All new papers)
- NEP-CBE-2012-06-25 (Cognitive & Behavioural Economics)
- NEP-EXP-2012-06-25 (Experimental Economics)
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.:
- David Genesove & Christopher Mayer, 2001.
"Loss Aversion And Seller Behavior: Evidence From The Housing Market,"
The Quarterly Journal of Economics,
MIT Press, vol. 116(4), pages 1233-1260, November.
- David Genesove & Christopher Mayer, . "Loss Aversion and Seller Behavior: Evidence from the Housing Market," Zell/Lurie Center Working Papers 323, Wharton School Samuel Zell and Robert Lurie Real Estate Center, University of Pennsylvania.
- David Genesove & Christopher Mayer, 2001. "Loss Aversion and Seller Behavior: Evidence from the Housing Market," NBER Working Papers 8143, National Bureau of Economic Research, Inc.
- Genesove, David & Mayer, Christopher, 2001. "Loss Aversion and Seller Behaviour: Evidence from the Housing Market," CEPR Discussion Papers 2813, C.E.P.R. Discussion Papers.
- Boone, Audra L. & Harold Mulherin, J., 2008. "Do auctions induce a winner's curse? New evidence from the corporate takeover market," Journal of Financial Economics, Elsevier, vol. 89(1), pages 1-19, July.
- Fershtman, Chaim & Judd, Kenneth L & Kalai, Ehud, 1991.
"Observable Contracts: Strategic Delegation and Cooperation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 551-59, August.
- Chaim Fershtman & Kenneth L. Judd & Ehud Kalai, 1990. "Observable Contracts: Strategic Delegation and Cooperation," Discussion Papers 879, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Brit Grosskopf & Yoella Bereby-Meyer & Max Bazerman, 2007. "On the Robustness of the Winnerâ€™s Curse Phenomenon," Theory and Decision, Springer, vol. 63(4), pages 389-418, December.
- Jehiel, Philippe & Koessler, Frédéric, 2008.
"Revisiting games of incomplete information with analogy-based expectations,"
Games and Economic Behavior,
Elsevier, vol. 62(2), pages 533-557, March.
- Philippe Jehiel & Frédéric Koessler, 2006. "Revisiting Games of Incomplete Information with Analogy-Based Expectations," Levine's Bibliography 122247000000000252, UCLA Department of Economics.
- Philippe Jehiel & Frederic Koessler, 2005. "Revisiting Games of Incomplete Information with Analogy-Based Expectations," THEMA Working Papers 2005-04, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
- John A. List, 2003.
"Does Market Experience Eliminate Market Anomalies?,"
The Quarterly Journal of Economics,
MIT Press, vol. 118(1), pages 41-71, February.
- John List, 2003. "Does market experience eliminate market anomalies?," Natural Field Experiments 00297, The Field Experiments Website.
- Georg Nöldeke & Larry Samuelson, 2005. "Information-Based Relative Consumption Effects: Correction," Econometrica, Econometric Society, vol. 73(4), pages 1383-1387, 07.
- Charles R. Plott & Kathryn Zeiler, 2007. "Exchange Asymmetries Incorrectly Interpreted as Evidence of Endowment Effect Theory and Prospect Theory?," American Economic Review, American Economic Association, vol. 97(4), pages 1449-1466, September.
- Arthur J. Robson & Larry Samuelson, 2009.
"The Evolution of Time Preference with Aggregate Uncertainty,"
Levine's Working Paper Archive
814577000000000087, David K. Levine.
- Arthur J. Robson & Larry Samuelson, 2009. "The Evolution of Time Preference with Aggregate Uncertainty," American Economic Review, American Economic Association, vol. 99(5), pages 1925-53, December.
- Hansen, Robert G, 1986. "Sealed-Bid versus Open Auctions: The Evidence," Economic Inquiry, Western Economic Association International, vol. 24(1), pages 125-42, January.
- Glenn Harrison & John List, 2004.
Artefactual Field Experiments
00058, The Field Experiments Website.
- Walter J. Mead & Asbjorn Moseidjord & Philip E. Sorensen, 1983. "The Rate of Return Earned by Lessees under Cash Bonus Bidding for OCS Oil and Gas Leases," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 37-52.
- Heller, Yuval, 2010. "Overconfidence and risk dispersion," MPRA Paper 25893, University Library of Munich, Germany.
- Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
- Ball, Sheryl B. & Bazerman, Max H. & Carroll, John S., 1991. "An evaluation of learning in the bilateral winner's curse," Organizational Behavior and Human Decision Processes, Elsevier, vol. 48(1), pages 1-22, February.
- Jack Knetsch & Fang-Fang Tang & Richard Thaler, 2001. "The Endowment Effect and Repeated Market Trials: Is the Vickrey Auction Demand Revealing?," Experimental Economics, Springer, vol. 4(3), pages 257-269, December.
- Larry Samuelson & Arthur J. Robson, 2007. "The Evolution of Intertemporal Preferences," American Economic Review, American Economic Association, vol. 97(2), pages 496-500, May.
- Kliemt, Hartmut, 2001. "Rationality and Reality," Kyklos, Wiley Blackwell, vol. 54(2-3), pages 309-16.
- John A. List, 2004.
"Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace,"
Econometric Society, vol. 72(2), pages 615-625, 03.
- John List, 2004. "Neoclassical theory versus prospect theory: Evidence from the marketplace," Framed Field Experiments 00174, The Field Experiments Website.
- John A. List, 2003. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," NBER Working Papers 9736, National Bureau of Economic Research, Inc.
- Hendricks, Kenneth & Porter, Robert H & Boudreau, Bryan, 1987. "Information, Returns, and Bidding Behavior in OCS Auctions: 1954-1969," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 517-42, June.
- Waldman, Michael, 1994. "Systematic Errors and the Theory of Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 482-97, June.
- Partha Dasgupta & Eric Maskin, 2005.
"Uncertainty and Hyperbolic Discounting,"
American Economic Review,
American Economic Association, vol. 95(4), pages 1290-1299, September.
- Daniel Kahneman & Dan Lovallo, 1993. "Timid Choices and Bold Forecasts: A Cognitive Perspective on Risk Taking," Management Science, INFORMS, vol. 39(1), pages 17-31, January.
- Hansen, Robert G, 1985. "Empirical Testing of Auction Theory," American Economic Review, American Economic Association, vol. 75(2), pages 156-59, May.
- Heifetz, Aviad & Segev, Ella, 2004. "The evolutionary role of toughness in bargaining," Games and Economic Behavior, Elsevier, vol. 49(1), pages 117-134, October.
- Heller, Yuval, 2012.
"Three steps ahead,"
39429, University Library of Munich, Germany.
- Heller, Yuval & Winter, Eyal, 2013. "Rule Rationality," MPRA Paper 48746, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.