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THE ENDOWMENT EFFECT AS BLESSING
Author(s) -
Frenkel Sivan,
Heller Yuval,
Teper Roee
Publication year - 2018
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12300
Subject(s) - endowment , blessing , replicator equation , curse , economics , stochastic game , mathematical economics , population , natural selection , selection (genetic algorithm) , microeconomics , econometrics , computer science , artificial intelligence , law , sociology , demography , archaeology , political science , anthropology , history
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.