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The endowment effect as blessing

Sivan Frenkel, Yuval Heller, Roee Teper
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. We develop a new family of "hybrid-replicator" dynamics. 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.
Year of publication:
June 15, 2017
Authors: Frenkel, Sivan ; Heller, Yuval ; Teper, Roee
Publisher: [Ramat-Gan, Israel] : [Bar Ilan University, Department of Economics]
Subject: Endowment Effect | Winner's Curse | Bounded Rationality | Evolution | Begrenzte Rationalität | Bounded rationality | Verhaltensökonomik | Behavioral economics | Experiment | Zahlungsbereitschaftsanalyse | Willingness to pay | Prospect Theory | Prospect theory | Auktionstheorie | Auction theory
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