The endowment effect, status quo bias and loss aversion: rational alternative explanation

D.Y. Dupont, Gabriel S. Lee

    Research output: Contribution to journalArticleAcademicpeer-review

    16 Citations (Scopus)

    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.
    Original languageEnglish
    Pages (from-to)87-101
    JournalJournal of risk and uncertainty
    Volume25
    Issue number1
    DOIs
    Publication statusPublished - 2002

    Keywords

    • Endowment effect
    • loss aversion
    • bid/ask spread
    • IR-43298
    • status quo bias
    • METIS-206316
    • asymmetric information

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