Endowment as a blessing

Sivan Frenkel, Yuval Heller () and Roee Teper

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: Bounded Rationality; Endowment Effect; Winner's Curse; Cursed Equilibrium; Evolution (search for similar items in EconPapers)
JEL-codes: D82 C73 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe and nep-exp
Date: 2012-04-30, Revised 2012-04-30
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:39430

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