The Endowment Effect, Status Quo Bias and Loss Aversion: Rational Alternative Explanation

Dominique Y Dupont and Gabriel Lee

Journal of Risk and Uncertainty, 2002, vol. 25, issue 1, 87-101

Abstract: The endowment effect, status quo bias, and loss aversion are robust and well documented results from experimental psychology. They introduce a wedge between the prices at which one is willing to sell or buy a good. The objective of this paper is to address this wedge. We show that the presence of asymmetric information in a rational-agent framework can also account for the endowment effect, status quo bias and loss aversion without invoking psychology-based explanations proposed in the past. Copyright 2002 by Kluwer Academic Publishers

Date: 2002
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