The Endowment Effect

Keith Ericson and Andreas Fuster

Annual Review of Economics, 2014, vol. 6, issue 1, 555-579

Abstract: The endowment effect is among the best known findings in behavioral economics and has been used as evidence for theories of reference-dependent preferences and loss aversion. However, a recent literature has questioned the robustness of the effect in the laboratory, as well as its relevance in the field. In this review, we provide a summary of the evidence and describe recent theoretical developments that can potentially reconcile the different findings, with a focus on expectation-based reference points. We also survey recent work from psychology that provides either alternatives to or refinements of the usual loss-aversion explanation. We argue that loss aversion is still the leading paradigm for understanding the endowment effect, but given the rich psychology behind the effect, a version of the theory that encompasses multiple reference points may be required.

Keywords: reference-dependent preferences; loss aversion; WTP-WTA gap; expectations (search for similar items in EconPapers)
JEL-codes: C91 D03 D11 D87 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (46)

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Working Paper: The Endowment Effect (2013)
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