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Learning to like what you have: Explaining the endowment effect

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  • Huck, Steffen
  • Kirchsteiger, Georg
  • Oechssler, Jörg

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

  • Huck, Steffen & Kirchsteiger, Georg & Oechssler, Jörg, 1997. "Learning to like what you have: Explaining the endowment effect," SFB 373 Discussion Papers 1997,38, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
    • Handle: RePEc:zbw:sfb373:199738
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C79 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Other
    • D00 - Microeconomics - - General - - - General

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