Learning to Like What You Have - Explaining the Endowment Effect

14 Pages Posted: 22 Jul 2005

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

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)

Joerg Oechssler

University of Heidelberg - Alfred Weber Institute for Economics

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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.

Suggested Citation

Huck, Steffen and Kirchsteiger, Georg and Oechssler, Joerg, Learning to Like What You Have - Explaining the Endowment Effect. Economic Journal, Vol. 115, No. 505, pp. 689-702, July 2005. Available at SSRN: https://ssrn.com/abstract=760515

Steffen Huck (Contact Author)

University College London - Department of Economics ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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IZA Institute of Labor Economics

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Georg Kirchsteiger

Université Libre de Bruxelles (ULB) - European Center for Advanced Research in Economics and Statistics (ECARES) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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Joerg Oechssler

University of Heidelberg - Alfred Weber Institute for Economics ( email )

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Heidelberg, D-69117
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+49 6221 54 3630 (Fax)

HOME PAGE: http://www.awi.uni-heidelberg.de/with2/theorie2/Team/Oechssler/Oechssler_main.html

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