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Reference Points, Loss Aversion, and Contingent Values for Auto Safety

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  • McDaniels, Timothy L

Abstract

This article is concerned with the possible role of reference points and loss aversion (as suggested by prospect theory) in subjects' judgments about the value of increments and decrements in automobile safety. The contingent valuation method is employed in two experiments, both of which consider subjects' willingness-to-pay (WTP) for increased safety and compensation demanded (CD) for decreased safety in hypothetical new vehicle purchases. The results establish that disparities exist in subjects' WTP and CD values for the same increment of auto safety, even for a close-to-market context such as hypothetical new vehicle purchases. The results also indicate that evaluations can be manipulated by changing the perception of the reference point: losses can be recast as forgone gains and forgone gains as losses, altering (or even eliminating) differences between WTP and CD values. Copyright 1992 by Kluwer Academic Publishers

Suggested Citation

  • McDaniels, Timothy L, 1992. "Reference Points, Loss Aversion, and Contingent Values for Auto Safety," Journal of Risk and Uncertainty, Springer, vol. 5(2), pages 187-200, May.
    • Handle: RePEc:kap:jrisku:v:5:y:1992:i:2:p:187-200
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    Cited by:

    1. Strand.J., 2001. "Public- and private-good values of statistical lives : results from a combined choice-experiment and contingent-valuation survey," Memorandum 31/2001, Oslo University, Department of Economics.
    2. Sayman, Serdar & Onculer, Ayse, 2005. "Effects of study design characteristics on the WTA-WTP disparity: A meta analytical framework," Journal of Economic Psychology, Elsevier, vol. 26(2), pages 289-312, April.
    3. Marit Kragt & Jeffrey Bennett, 2012. "Attribute Framing in Choice Experiments: How Do Attribute Level Descriptions Affect Value Estimates?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(1), pages 43-59, January.
    4. Rekola, Mika & Pouta, Eija, 2005. "Public preferences for uncertain regeneration cuttings: a contingent valuation experiment involving Finnish private forests," Forest Policy and Economics, Elsevier, vol. 7(4), pages 635-649, May.
    5. Henrik Andersson & Nicolas Treich, 2011. "The Value of a Statistical Life," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 17, Edward Elgar Publishing.
    6. Andersson, Henrik, 2013. "Consistency in preferences for road safety: An analysis of precautionary and stated behavior," Research in Transportation Economics, Elsevier, vol. 43(1), pages 41-49.
    7. Horowitz, John K. & McConnell, K. E., 2003. "Willingness to accept, willingness to pay and the income effect," Journal of Economic Behavior & Organization, Elsevier, vol. 51(4), pages 537-545, August.
    8. Anna Alberini, 2004. "Robustness of VSL Values from Contingent Valuation Surveys," Working Papers 2004.135, Fondazione Eni Enrico Mattei.
    9. Connor, Robert A., 1996. "More than risk reduction: The investment appeal of insurance," Journal of Economic Psychology, Elsevier, vol. 17(1), pages 39-54, February.
    10. Paul Dolan & Martin Jones, 2002. "Explaining Attitudes towards Ambiguity: An Experimental Test of the Comparative Ignorance Hypothesis," Dundee Discussion Papers in Economics 131, Economic Studies, University of Dundee.
    11. Dolan, Paul & Robinson, Angela, 2001. "The measurement of preferences over the distribution of benefits: The importance of the reference point," European Economic Review, Elsevier, vol. 45(9), pages 1697-1709, October.
    12. Arianne de Blaeij & Raymond J.G.M. Florax & Piet Rietveld & Erik T. Verhoef, 2000. "The Value of Statistical Life in Road Safety: A Meta-Analysis," Tinbergen Institute Discussion Papers 00-089/3, Tinbergen Institute.
    13. Bernie J. O'Brien & Kirsten Gertsen & Andrew R. Willan & A. Faulkner, 2002. "Is there a kink in consumers' threshold value for cost‐effectiveness in health care?," Health Economics, John Wiley & Sons, Ltd., vol. 11(2), pages 175-180, March.
    14. Horowitz, John K. & McConnell, Kenneth E., 2002. "A Review of WTA/WTP Studies," Journal of Environmental Economics and Management, Elsevier, vol. 44(3), pages 426-447, November.
    15. Han Bleichrodt & José Luis Pinto, 2000. "An experimental test of loss aversion and scale compatibility," Working Papers, Research Center on Health and Economics 467, Department of Economics and Business, Universitat Pompeu Fabra.
    16. Ulrich Schmidt & Stefan Traub, 2009. "An Experimental Investigation of the Disparity Between WTA and WTP for Lotteries," Theory and Decision, Springer, vol. 66(3), pages 229-262, March.
    17. Saito, Hiroharu, 2022. "Loss aversion for the value of voting rights: WTA/WTP ratios for a ballot," International Review of Law and Economics, Elsevier, vol. 69(C).
    18. Bunse, Lukas & Rendon, Olivia & Luque, Sandra, 2015. "What can deliberative approaches bring to the monetary valuation of ecosystem services? A literature review," Ecosystem Services, Elsevier, vol. 14(C), pages 88-97.
    19. Andersson, Henrik, 2006. "Willingness to Pay for Road Safety and Estimates of the Risk of Death: Evidence from a Swedish Contingent Valuation Study," Working Papers 2006:5, Swedish National Road & Transport Research Institute (VTI).
    20. Thijs Dekker & Roy Brouwer & Marjan Hofkes & Klaus Moeltner, 2011. "The Effect of Risk Context on the Value of a Statistical Life: a Bayesian Meta-model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(4), pages 597-624, August.
    21. W. J. Wouter Botzen & Jeroen C. J. M. Van Den Bergh, 2012. "Monetary Valuation Of Insurance Against Flood Risk Under Climate Change," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 53(3), pages 1005-1026, August.

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