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Sunk ‘Decision Points’: a theory of the endowment effect and present bias

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  • Peter Landry

    (University of Toronto)

Abstract

This paper presents a very simple model in which situational cues associated with a particular consumption good compel an agent—who may have otherwise been “thinking about” something else—to consider the decision to consume that good. Within this framework, it is shown how an endowment effect and a present bias can arise through a common mechanism. The analysis points to a novel, contributing role for inattention (of a particular form) in understanding both of these behavioral anomalies while also speaking to evidence that they are often cue-induced.

Suggested Citation

  • Peter Landry, 2019. "Sunk ‘Decision Points’: a theory of the endowment effect and present bias," Theory and Decision, Springer, vol. 86(1), pages 23-39, February.
    • Handle: RePEc:kap:theord:v:86:y:2019:i:1:d:10.1007_s11238-018-9673-9
    DOI: 10.1007/s11238-018-9673-9
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