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.
|Journal||Journal of risk and uncertainty|
|Publication status||Published - 2002|
- Endowment effect
- loss aversion
- bid/ask spread
- status quo bias
- asymmetric information