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Theory and Decision

, Volume 86, Issue 1, pp 23–39 | Cite as

Sunk ‘Decision Points’: a theory of the endowment effect and present bias

  • Peter LandryEmail author
Article
  • 75 Downloads

Abstract

This paper presents a very simple model in which situational cues associated with a particular consumption good compel an agent—who may have otherwise been “thinking about” something else—to consider the decision to consume that good. Within this framework, it is shown how an endowment effect and a present bias can arise through a common mechanism. The analysis points to a novel, contributing role for inattention (of a particular form) in understanding both of these behavioral anomalies while also speaking to evidence that they are often cue-induced.

Keywords

(In)attention Cues Present bias Endowment effect 

Notes

Acknowledgements

I am grateful to the editor and referee for their excellent feedback, which greatly improved the paper. I also thank Attila Ambrus, Peter Arcidiacono, Mike Dalton, Rachel Kranton, and Philipp Sadowski for their helpful comments in the early stages of this project.

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.University of TorontoTorontoCanada

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