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Learning to like what you have - explaining the endowment effect

Author

Listed:
  • Steffen Huck
  • Georg Kirchsteiger
  • Jörg Oechssler

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. Copyright 2005 Royal Economic Society.

Suggested Citation

  • Steffen Huck & Georg Kirchsteiger & Jörg Oechssler, 2005. "Learning to like what you have - explaining the endowment effect," Economic Journal, Royal Economic Society, vol. 115(505), pages 689-702, July.
    • Handle: RePEc:ecj:econjl:v:115:y:2005:i:505:p:689-702
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    JEL classification:

    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D00 - Microeconomics - - General - - - General

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