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Learning to Like What You Have - Explaining the Endowment Effect

Author

Listed:
  • 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.

Suggested Citation

  • Steffen Huck & Georg Kirchsteiger & Joerg Oechssler, 1997. "Learning to Like What You Have - Explaining the Endowment Effect," Game Theory and Information 9702001, University Library of Munich, Germany, revised 15 May 1997.
  • Handle: RePEc:wpa:wuwpga:9702001
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    References listed on IDEAS

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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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