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Reference Points, Loss Aversion, and Contingent Values for Auto Safety

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  • McDaniels, Timothy L
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    Abstract

    This article is concerned with the possible role of reference points and loss aversion (as suggested by prospect theory) in subjects' judgments about the value of increments and decrements in automobile safety. The contingent valuation method is employed in two experiments, both of which consider subjects' willingness-to-pay (WTP) for increased safety and compensation demanded (CD) for decreased safety in hypothetical new vehicle purchases. The results establish that disparities exist in subjects' WTP and CD values for the same increment of auto safety, even for a close-to-market context such as hypothetical new vehicle purchases. The results also indicate that evaluations can be manipulated by changing the perception of the reference point: losses can be recast as forgone gains and forgone gains as losses, altering (or even eliminating) differences between WTP and CD values. Copyright 1992 by Kluwer Academic Publishers

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    Bibliographic Info

    Article provided by Springer in its journal Journal of Risk and Uncertainty.

    Volume (Year): 5 (1992)
    Issue (Month): 2 (May)
    Pages: 187-200

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    Handle: RePEc:kap:jrisku:v:5:y:1992:i:2:p:187-200

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    Cited by:
    1. Sayman, Serdar & Onculer, Ayse, 2005. "Effects of study design characteristics on the WTA-WTP disparity: A meta analytical framework," Journal of Economic Psychology, Elsevier, vol. 26(2), pages 289-312, April.
    2. Andersson, Henrik, 2013. "Consistency in preferences for road safety: An analysis of precautionary and stated behavior," Research in Transportation Economics, Elsevier, vol. 43(1), pages 41-49.
    3. Anna Alberini, 2004. "Robustness of VSL Values from Contingent Valuation Surveys," Working Papers 2004.135, Fondazione Eni Enrico Mattei.
    4. Horowitz, John K. & McConnell, K. E., 2003. "Willingness to accept, willingness to pay and the income effect," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 537-545, August.
    5. Schmidt, Ulrich & Traub, Stefan, 2009. "An experimental investigation of the disparity between WTA and WTP for lotteries," Open Access Publications from Kiel Institute for the World Economy 28786, Kiel Institute for the World Economy (IfW).
    6. Marit Kragt & Jeffrey Bennett, 2012. "Attribute Framing in Choice Experiments: How Do Attribute Level Descriptions Affect Value Estimates?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 51(1), pages 43-59, January.
    7. Dolan, Paul & Robinson, Angela, 2001. "The measurement of preferences over the distribution of benefits: The importance of the reference point," European Economic Review, Elsevier, vol. 45(9), pages 1697-1709, October.
    8. Connor, Robert A., 1996. "More than risk reduction: The investment appeal of insurance," Journal of Economic Psychology, Elsevier, vol. 17(1), pages 39-54, February.
    9. Horowitz, John K. & McConnell, Kenneth E., 2002. "A Review of WTA/WTP Studies," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 426-447, November.
    10. Thijs Dekker & Roy Brouwer & Marjan Hofkes & Klaus Moeltner, 2011. "The Effect of Risk Context on the Value of a Statistical Life: a Bayesian Meta-model," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(4), pages 597-624, August.
    11. Rekola, Mika & Pouta, Eija, 2005. "Public preferences for uncertain regeneration cuttings: a contingent valuation experiment involving Finnish private forests," Forest Policy and Economics, Elsevier, vol. 7(4), pages 635-649, May.
    12. Strand, Jon, 2009. "Public- and private-good values of statistical lives Results from a combined choice-experiment and contingent-valuation survey," HERO On line Working Paper Series 2002:2, Oslo University, Health Economics Research Programme.
    13. Andersson, Henrik, 2006. "Willingness to Pay for Road Safety and Estimates of the Risk of Death: Evidence from a Swedish Contingent Valuation Study," Working Papers 2006:5, Swedish National Road & Transport Research Institute (VTI).
    14. Paul Dolan & Martin Jones, 2002. "Explaining Attitudes towards Ambiguity: An Experimental Test of the Comparative Ignorance Hypothesis," Dundee Discussion Papers in Economics 131, Economic Studies, University of Dundee.

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