Editing Endowment effect (section)

===Reference-dependent accounts===
According to [[Reference dependence|reference-dependent]] theories, consumers first evaluate the potential change in question as either being a gain or a loss. In line with [[prospect theory]] (Tversky and Kahneman, 1979<ref name="KahnemanTversky1979" />), changes that are framed as losses are weighed more heavily than are the changes framed as gains. Thus an individual owning "A" amount of a good, asked how much he/she would be willing to pay to acquire "B", would be willing to pay a value (B-A) that is lower than the value that he/she would be willing to accept to sell (C-A) units; the value function for perceived gains is not as steep as the value function for perceived losses.

Figure 1 presents this explanation in graphical form. An individual at point A, asked how much he/she would be willing to accept (WTA) as compensation to sell X units and move to point C, would demand greater compensation for that loss than he/she would be willing to pay for an equivalent gain of X units to move him/her to point B. Thus the difference between (B-A) and (C-A) would account for the endowment effect. In other words, he/she expects more money while selling; but wants to pay less while buying the same amount of goods.

:[[File:ValunFunProspectTheory2.png]]
:''Figure 1: Prospect Theory and the Endowment Effect''