The Endowment Effect as Blessing

International Economic Review, Forthcoming

43 Pages Posted: 13 Jun 2012 Last revised: 16 Jun 2017

See all articles by Sivan Frenkel

Sivan Frenkel

Tel Aviv University - Coller School of Management

Yuval Heller

Bar Ilan University

Roee Teper

Tel Aviv University

Multiple version iconThere are 2 versions of this paper

Date Written: June 15, 2017

Abstract

We study the idea that seemingly unrelated behavioral biases can coevolve if they jointly compensate for the errors that any one of them would give rise to in isolation. We suggest that the “endowment effect” and the “winner's curse” could have jointly survived natural selection together. Next we develop a new family of “hybrid-replicator” dynamics. We show that under such dynamics, biases survive in the population for a long period of time even if they only partially compensate for each other and despite the fact that the rational type's payoff is strictly larger than the payoffs of all other types.

Keywords: Endowment Effect, Winner's Curse, Bounded Rationality, Evolution

JEL Classification: C73, D82

Suggested Citation

Frenkel, Sivan and Heller, Yuval and Teper, Roee, The Endowment Effect as Blessing (June 15, 2017). International Economic Review, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2083503 or http://dx.doi.org/10.2139/ssrn.2083503

Sivan Frenkel

Tel Aviv University - Coller School of Management ( email )

Tel Aviv
Israel

HOME PAGE: http://https://sites.google.com/site/sivanfrenkel/

Yuval Heller (Contact Author)

Bar Ilan University ( email )

Dept. of Economics, Building 504
Bar Ilan University
Ramat Gan, 5290002
Israel
+972 5252 82182 (Phone)

HOME PAGE: http://https://sites.google.com/site/yuval26/

Roee Teper

Tel Aviv University ( email )

Ramat Aviv
Tel-Aviv, 6997801
Israel

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