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Endowment as a blessing

  • Frenkel, Sivan
  • Heller, Yuval
  • Teper, Roee

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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 39430.

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Date of creation: 30 Apr 2012
Date of revision: 30 Apr 2012
Handle: RePEc:pra:mprapa:39430
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  17. Kagel, John H & Harstad, Ronald M & Levin, Dan, 1987. "Information Impact and Allocation Rules in Auctions with Affiliated Private Values: A Laboratory Study," Econometrica, Econometric Society, vol. 55(6), pages 1275-1304, November.
  18. 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.
  19. Partha Dasgupta & Eric Maskin, 2005. "Uncertainty and Hyperbolic Discounting," American Economic Review, American Economic Association, vol. 95(4), pages 1290-1299, September.
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  22. Waldman, Michael, 1994. "Systematic Errors and the Theory of Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 482-97, June.
  23. Heller, Yuval, 2010. "Overconfidence and risk dispersion," MPRA Paper 25893, University Library of Munich, Germany.
  24. 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.
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