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Measuring the Willingness to Pay to Avoid Guilt: Estimation Using Equilibrium and Stated Belief Models

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Author Info

  • Bellemare, Charles

    ()
    (Université Laval)

  • Sebald, Alexander

    ()
    (University of Copenhagen)

  • Strobel, Martin

    ()
    (Maastricht University)

Abstract

We estimate structural models of guilt aversion to measure the population level of willingness to pay (WTP) to avoid feeling guilt by letting down another player. We compare estimates of WTP under the assumption that higher-order beliefs are in equilibrium (i.e. consistent with the choice distribution) with models estimated using stated beliefs which relax the equilibrium requirement. We estimate WTP in the later case by allowing stated beliefs to be correlated with guilt aversion, thus controlling for a possible source of a consensus effect. All models are estimated using data from an experiment of proposal and response conducted with a large and representative sample of the Dutch population. Our range of estimates suggests that responders are willing to pay between 0.40 and 0.80 Euro to avoid letting down proposers by 1 Euro. Furthermore, we find that WTP estimated using stated beliefs is substantially overestimated (by a factor of two) when correlation between preferences and beliefs is not controlled for. Finally, we find no evidence that WTP is significantly related to the observable socio-economic characteristics of players.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4803.

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Length: 31 pages
Date of creation: Mar 2010
Date of revision:
Publication status: published in: Journal of Applied Econometrics, 2011, 26 (3), 437 - 453
Handle: RePEc:iza:izadps:dp4803

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Keywords: equilibrium and stated beliefs models; willingness to pay; guilt aversion;

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References

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  1. Bellemare, Charles & Kröger, Sabine, 2003. "On Representative Trust," SFB 373 Discussion Papers 2003,27, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  2. Christoph Vanberg, 2008. "Why Do People Keep Their Promises? An Experimental Test of Two Explanations -super-1," Econometrica, Econometric Society, vol. 76(6), pages 1467-1480, November.
  3. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper 1998-37, Tilburg University, Center for Economic Research.
  4. Bellemare, Charles & Kröger, Sabine, 2004. "On Representative Social Capital," IZA Discussion Papers 1145, Institute for the Study of Labor (IZA).
  5. Ellingsen, Tore & Johannesson, Magnus & Tjøtta, Sigve & Torsvik, Gaute, 2007. "Testing Guilt Aversion," Working Paper Series in Economics and Finance 683, Stockholm School of Economics.
  6. Muller, Werner G & Ponce de Leon, Antonio C M, 1996. "Optimal Design of an Experiment in Economics," Economic Journal, Royal Economic Society, vol. 106(434), pages 122-27, January.
  7. Charness, Gary B & Rabin, Matthew, 2004. "Expressed Preferences and Behavior in Experimental Games," University of California at Santa Barbara, Economics Working Paper Series qt153590pb, Department of Economics, UC Santa Barbara.
  8. John Kagel & Katherine Wolfe, 2001. "Tests of Fairness Models Based on Equity Considerations in a Three-Person Ultimatum Game," Experimental Economics, Springer, vol. 4(3), pages 203-219, December.
  9. Pierpaolo Battigalli & Martin Dufwenberg, 2007. "Guilt in Games," American Economic Review, American Economic Association, vol. 97(2), pages 170-176, May.
  10. Jeffrey Racine, 2008. "Nonparametric econometrics: a primer (in Russian)," Quantile, Quantile, issue 4, pages 7-56, March.
  11. Engelmann, Dirk & Strobel, Martin, 1999. "The false consensus effect disappears if representative information and monetary incentives are given," SFB 373 Discussion Papers 1999,66, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  12. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
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Citations

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Cited by:
  1. Neri, Claudia & Manski, Charles, 2012. "First- and Second-order Subjective Expectations in Strategic Decision-Making: Experimental Evidence," Economics Working Paper Series 1206, University of St. Gallen, School of Economics and Political Science.
  2. Charles Bellemare & Luc Bissonnette & Sabine Kröger, 2010. "Bounding preference parameters under different assumptions about beliefs: a partial identification approach," Experimental Economics, Springer, vol. 13(3), pages 334-345, September.
  3. Costa-Gomes, Miguel A. & Huck, Steffen & Weizsäcker, Georg, 2010. "Beliefs and Actions in the Trust Game: Creating Instrumental Variables to Estimate the Causal Effect," IZA Discussion Papers 4709, Institute for the Study of Labor (IZA).
  4. Charles Bellemare & Alexander Sebald, 2011. "Learning about a Class of Belief-Dependent Preferences without Information on Beliefs," Cahiers de recherche 1125, CIRPEE.
  5. Regner, Tobias & Riener, Gerhard, 2012. "Motivational cherry picking," DICE Discussion Papers 68, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  6. Jürgen Bracht & Tobias Regner, 2011. "Moral Emotions and Partnership," Jena Economic Research Papers 2011-028, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  7. Pierpaolo Battigalli & Gary Charness & Martin Dufwenberg, 2012. "Deception: The Role of Guilt," Working Papers 457, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  8. Giuseppe Attanasi & Pierpaolo Battigalli & Elena Manzoni, 2013. "Incomplete Information Models of Guilt Aversion in the Trust Game," Working Papers 246, University of Milano-Bicocca, Department of Economics, revised Jun 2013.
  9. Giuseppe Attanasi & Pierpaolo Battigalli & Rosemarie Nagel, 2013. "Disclosure of Belief-Dependent Preferences in a Trust Game," Working Papers 506, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  10. Alexander Smith, 2013. "Estimating the causal effect of beliefs on contributions in repeated public good games," Experimental Economics, Springer, vol. 16(3), pages 414-425, September.
  11. Engelmann, Dirk & Strobel, Martin, 2012. "Deconstruction and reconstruction of an anomaly," Games and Economic Behavior, Elsevier, vol. 76(2), pages 678-689.
  12. Manski, Charles F. & Neri, Claudia, 2013. "First- and second-order subjective expectations in strategic decision-making: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 81(C), pages 232-254.

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