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On the Relation between Willingness to Accept and Willingness to Pay

Author

Listed:
  • Jonathan Chapman

    (NYUAD)

  • Mark Dean

    (Columbia University)

  • Pietro Ortoleva

    (Princeton University)

  • Erik Snowberg

    (UBC, CESifo, NBER)

  • Colin Camerer

    (Caltech)

Abstract

A vast literature documents that willingness to pay (WTP) is less than willingness to accept (WTA) a monetary amount for an object, a phenomenon called the endowment effect. Using data from three incentivized studies with a total representative sample of 4,000 U.S. adults, we add one additional finding: WTA and WTP for a lottery are (essentially) uncorrelated. In contrast, independent measures of WTA (or WTP) are highly correlated, and relatively stable across time. Leading models of reference dependent preferences are compatible with a zero correlation between WTA and WTP, but only for specific parameterizations and ruling out popular special cases. These models also predict a relationship between the endowment effect and loss aversion, which we do not find.

Suggested Citation

  • Jonathan Chapman & Mark Dean & Pietro Ortoleva & Erik Snowberg & Colin Camerer, 2021. "On the Relation between Willingness to Accept and Willingness to Pay," Working Papers 2021-90, Princeton University. Economics Department..
    • Handle: RePEc:pri:econom:2021-90
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    References listed on IDEAS

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    More about this item

    Keywords

    Willingness To Pay; Willingness To Accept; Endowment Effect; Loss Aversion;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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