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tgb comments on [Link] Is the Endowment Effect Real? - Less Wrong
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I'm not convinced that the 'endowment effect' would be an inaccurate heuristic. (Is this being claimed? I'm not sure.) If I play a trading card game and get some shiny new card that looks pretty good to me and I guess that it's worth $5 and someone comes a long and see it and offers to buy it from me for my value of $5, I suddenly think that the card might actually be better than I realized and worth more than $5; certainly at least one other person thought it was worth at least $5. Kahneman's prospect model appears to assume perfect knowledge of the probabilities of the outcomes. When I don't truly know the value of objects, isn't it rational to err on the side of not taking up other people's offers?
I don't think it's being claimed that it's a universally bad heuristic (or valuation bias or whatever), but rather that it sometimes leads to bad decisions. For example, I've read speculation* to the effect that it can make renegotiation of contracts trickier (people unwilling to go down), make it harder for e.g. mobile spectrum licenses to end up with the right companies, and (elsewhere) that it may account for people hoarding stuff even when it's extremely unlikely that they will ever have a use for it.
*upon re-skimming, that article also makes reference to an MRI study that purports to find the endowment effect in the brain, and contains a bunch of evpsych speculation about possible evolutionary causes by people with PhDs.
Expecting offers to exploit your uncertainty about a commodity's value doesn't immediately induce a WTP-WTA gap because you could be symmetrically cautious and avoid paying $5 for the shiny card when offered.
Someone offering to buy my cad for $5 suggests its value is above $5. Someone accepting my offer to buy their card for $5 suggests that the card is worth less than $5. Even if I value the card at $5, I suspect I am not getting market value for it if I am uncertain of the price and someone accepts my offer (either to buy or to sell). I might compensate by having WTP of $4 and WTA of $6. It's exactly this symmetric cautiousness that seems to induce a WTP-WTA gap.
This is the thesis of a later paper by Plott and Zeiler, and AFAIK (haven't read it), they do new experiments and find evidence for it and against the endowment effect theory. The economist covered it here.