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Learning to Like What You Have - Explaining the Endowment Effect

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  • Steffen Huck

    (Humboldt University, Berlin)

  • Georg Kirchsteiger

    (CentER, Tilburg)

  • Joerg Oechssler

    (Humboldt University, Berlin)

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 almost all individuals will have a strictly positive and finite endowment effect.

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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 9702001.

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Date of creation: 06 Feb 1997
Date of revision: 15 May 1997
Handle: RePEc:wpa:wuwpga:9702001

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