The endowment effect is closely related to the concept of reference-dependent
preferences and is often associated with loss aversion in individual choice environments.
Loss aversion (Tversky and Kahneman 1991; Kahneman, Knetch,
and Thaler 1991) posits that individuals attach greater weight to losses than
commensurate gains relative to a reference state and, as a consequence, ‘the
loss of utility associated with giving up a valued good [which is part of the
current reference state] is greater than the utility gain associated with receiving
it [when it is not part of the current reference state]’ (Tversky and Kahneman
1991, 1041; comments in brackets). The endowment effect can thus be thought
of as a consequence of loss aversion within the realm of reference-dependent
preferences.