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

Dominique Y. Dupont
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Dominique Y. Dupont: EURANDOM, The Netherlands

No 92, Economics Series from Institute for Advanced Studies

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 account for the endowment effect, status quo bias and loss aversion as well as psychology-based explanations proposed in the past.

Keywords: Endowment effect; Status quo bias; Loss aversion; Asymmetric information; Bid/ask spread (search for similar items in EconPapers)
JEL-codes: D81 D82 G22 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2001-01
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https://irihs.ihs.ac.at/id/eprint/1320 First version, 2001 (application/pdf)

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