Learning to Like What You Have - Explaining the Endowment Effect

Huck, Steffen; Oechssler, Joerg; Kirchsteiger, Georg

doi:10.2139/ssrn.38305

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Learning to Like What You Have - Explaining the Endowment Effect

21 Pages Posted: 21 May 1997

See all articles by Steffen Huck

Steffen Huck

University College London - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Joerg Oechssler

University of Heidelberg - Alfred Weber Institute for Economics

Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: April 15, 1997

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.

JEL Classification: C73, C79, D00

Suggested Citation: Suggested Citation

Huck, Steffen and Oechssler, Joerg and Kirchsteiger, Georg, Learning to Like What You Have - Explaining the Endowment Effect (April 15, 1997). Available at SSRN: https://ssrn.com/abstract=38305 or http://dx.doi.org/10.2139/ssrn.38305