The Endowment Effect

Keith Ericson and Andreas Fuster

No 19384, NBER Working Papers from National Bureau of Economic Research, Inc

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 that given the rich psychology behind the effect, a version of the theory that encompasses multiple reference points may be required.

JEL-codes: C91 D03 D11 D87 (search for similar items in EconPapers)
Date: 2013-08
New Economics Papers: this item is included in nep-evo, nep-exp and nep-upt
Note: EEE LE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Published as Keith M. Marzilli Ericson & Andreas Fuster, 2014. "The Endowment Effect," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 555-579, 08.

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Journal Article: The Endowment Effect (2014)
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