Hedonic preferences, symmetric loss aversion and the willingness to pay-willingness to accept gap
AbstractThe results in this paper are relevant for the application of valuation studies in cost-benefit analysis in the presence of the willingness to pay - willingness to accept gap. We consider a consumer who makes choices based on choice preferences exhibiting reference-dependence and loss aversion. Choice preferences are related to underlying hedonic preferences through the marginal rates of substitution (MRS) at the reference. Our issue is the identification of hedonic preferences relevant to welfare economic analysis. We show that the hedonic MRS is identified from reference-dependent choices if loss aversion exhibits a certain symmetry. Moreover, we show that this symmetry is rational in the sense that it leads to maximal expected hedonic utility when choices are made under reference-dependent choice preferences.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 10041.
Date of creation: 2008
Date of revision:
Behavioral public economics; valuation of non-market goods; prospect theory; loss aversion;
Find related papers by JEL classification:
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-08-21 (All new papers)
- NEP-CBE-2008-08-21 (Cognitive & Behavioural Economics)
- NEP-UPT-2008-08-21 (Utility Models & Prospect Theory)
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