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Asymmetric Valuation of Gains and Losses and Preference Order Assumptions

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  • Knetsch, Jack L

Abstract

Recent findings of large differences between people's valuations of gains and losses imply that the common preference order axioms of completeness, transitivity, and dominance on which economic analyses and predictions of consumer behavior are largely based, may not be consistent with actual choices. This paper reports the results of an experimental test of the preference order assumptions using real exchanges of two goods and money. The findings show consistent differences in the valuation placed on goods and money, depending on whether the entitlements are being acquired or given up, and provide direct evidence of preference assumption violations. Copyright 1995 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 33 (1995)
Issue (Month): 1 (January)
Pages: 134-41

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Handle: RePEc:oup:ecinqu:v:33:y:1995:i:1:p:134-41

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Cited by:
  1. Philip R. P. Coelho & James E. McClure, 1996. "Social context and the utility of wealth: Addressing the Markowitz challenge," Working Papers 199602, Ball State University, Department of Economics, revised Jan 1998.
  2. Brown, Thomas C. & Gregory, Robin, 1999. "Why the WTA-WTP disparity matters," Ecological Economics, Elsevier, vol. 28(3), pages 323-335, March.
  3. Bodo Sturm & Joachim Weimann, 2006. "Experiments in Environmental Economics and Some Close Relatives," Journal of Economic Surveys, Wiley Blackwell, vol. 20(3), pages 419-457, 07.
  4. Sun, Lili & van Kooten, G. Cornelis & Voss, Graham M., 2006. "Quality of Life as an Explanation of the Divergence between RanchersÂ’' WTA and WTP for Public Forage," 2006 Annual meeting, July 23-26, Long Beach, CA 21162, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  5. de Groot, I. Manon & Antonides, Gerrit & Read, Daniel & Raaij, W. Fred van, 2009. "The effects of direct experience on consumer product evaluation," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(3), pages 509-518, June.
  6. Peter R. Mueser & Jay K. Dow, 1998. "Experimental Evidence on the Divergence Between Measures of Willingness to Pay and Willingness to Accept--The Role of Value Uncertainty," Experimental 9803001, EconWPA.
  7. Ahlheim, Michael & Frör, Oliver & Heinke, Antonia & Duc, Nguyen Minh & Dinh, Pham Van, 2010. "Labour as a utility measure in contingent valuation studies: how good is it really?," FZID Discussion Papers 13-2010, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  8. Borges, Bernhard F. J. & Knetsch, Jack L., 1998. "Tests of market outcomes with asymmetric valuations of gains and losses: Smaller gains, fewer trades, and less value," Journal of Economic Behavior & Organization, Elsevier, vol. 33(2), pages 185-193, January.
  9. Bruno S. Frey & Simon Luechinger, . "Measuring Terrorism," IEW - Working Papers 171, Institute for Empirical Research in Economics - University of Zurich.

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