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Valuations Of Changes In Risks: The Reference State And Evidence Of Differences Between The Measures

Author

Listed:
  • JICHUAN ZONG

    (School of Finance, Dongbei University of Finance & Economics, Dalian, P. R. China)

  • JACK L. KNETSCH

    (Simon Fraser University, Burnaby, British Columbia, Canada)

Abstract

Given the pervasive evidence that people typically value changes in terms of comparisons to a reference state, and that they commonly value losses and reductions of losses more than gains, current risk assessment and valuation practice is likely to lead to systematic bias and distorted guidance. Willingness to pay estimates of the value of reducing the risk of harm are, for example, likely to understate the value of actions to bring this about. Differences in valuations resulting from different measures are illustrated, and the criteria for the choice between measures of the value of positive and negative changes in risk are demonstrated with results from a new risk study in China.

Suggested Citation

  • Jichuan Zong & Jack L. Knetsch, 2013. "Valuations Of Changes In Risks: The Reference State And Evidence Of Differences Between The Measures," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 58(01), pages 1-15.
    • Handle: RePEc:wsi:serxxx:v:58:y:2013:i:01:n:s021759081350001x
    DOI: 10.1142/S021759081350001X
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    Citations

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    Cited by:

    1. Kiet T. Nguyen & Jack L. Knetsch & Phumsith Mahasuweerachai, 2021. "WTP or WTA: A Means of Determining the Appropriate Welfare Measure of Positive and Negative Changes When Preferences are Reference Dependent," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 78(4), pages 615-633, April.

    More about this item

    Keywords

    Gain and loss domains; reference state; willingness-to-pay; willingness-to-accept; value disparity; C91; D03; D61; D81;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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