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Is there a valuation gap? The case of interval valuations

Author

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  • Oben K Bayrak

    () (Centre for Environmental and Resource Economics)

  • Bengt Kriström

    () (Swedish University of Agricultural Sciences)

Abstract

We extend the literature on the willingness-to-pay/willingness-to-accept (WTP/WTA) disparity by testing two hypotheses, distilled from the literature. We also introduce a modified mechanism for eliciting the subjective valuation range if the individual cannot articulate the subjective value as a precise amount confidently. We elicited valuations for four goods: three ordinary market goods and a lottery ticket. Under the conventional setting in which subjects are asked to state a single precise amount, we observed a significant disparity for the lottery ticket. On the other hand, our key finding is that the disparity disappears under the intervals treatment, suggesting that response format is important, given that earlier experimental studies invariably uses point values (i.e. open ended questions about WTP/WTA). Moreover, for the risky prospect we observe that from their admissible range the buyers state the lower bound as their WTP whereas sellers state the upper bound as their WTA. We conclude that this type of behavior can to some extent explain the observed disparity at least for the risky prospects.

Suggested Citation

  • Oben K Bayrak & Bengt Kriström, 2016. "Is there a valuation gap? The case of interval valuations," Economics Bulletin, AccessEcon, vol. 36(1), pages 218-236.
  • Handle: RePEc:ebl:ecbull:eb-15-00718
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    References listed on IDEAS

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    Cited by:

    1. Drouvelis, Michalis & Sonnemans, Joep, 2017. "The endowment effect in games," European Economic Review, Elsevier, vol. 94(C), pages 240-262.
    2. Bayrak, Oben, 2016. "Another Solution for Allais Paradox: Preference Imprecision, Dispersion and Pessimism," MPRA Paper 71780, University Library of Munich, Germany.

    More about this item

    Keywords

    Willingness to Pay and Accept Disparity; Valuation Gap; Endowment Effect; Interval Valuation; Imprecise Preferences; Experimental Economics;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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