Towards understanding choice biases

Abstract

Our choices can often be biased in systematic ways. In this thesis, we study the cognitive mechanisms driving two prominent choice biases: the endowment effect and the descriptive norm effect. The endowment effect, a tendency to assign higher value to something you own, is typically explained based on loss aversion. A finding that the endowment effect reverses for choices between undesirable options has been taken as evidence against loss aversion. We find that these reversals are driven by people’s expectations and only seem to occur when comparisons between the options are limited. We outline a model of loss aversion that can qualitatively and quantitatively account for these results. The ..