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

  • Charles Bellemare

    (Département d’économique, Université Laval)

  • Alexander Sebald

    (Department of Economics, University of Copenhagen)

  • Martin Strobel

    (Department of Economics, Maastricht University)

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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File URL: http://www.econ.ku.dk/english/research/publications/wp/dp_2010/1008a.pdf
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 10-08.

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Length: 26 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:kud:kuiedp:1008
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  1. Bellemare, C. & Kroger, S., 2004. "On Representative Social Capital," Discussion Paper 2004-57, Tilburg University, Center for Economic Research.
  2. Gary Charness & Matthew Rabin, 2004. "Expressed Preferences and Behavior in Experimental Games," General Economics and Teaching 0407002, EconWPA.
  3. 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.
  4. Falk, Armin & Fehr, Ernst & Fischbacher, Urs, 2008. "Testing theories of fairness--Intentions matter," Games and Economic Behavior, Elsevier, vol. 62(1), pages 287-303, January.
  5. Ellingsen, Tore & Johannesson, Magnus & Tjøtta, Sigve & Torsvik, Gaute, 2007. "Testing Guilt Aversion," SSE/EFI Working Paper Series in Economics and Finance 683, Stockholm School of Economics.
  6. Margin Dufwenberg & Georg Kirchsteiger, 2001. "A Theory of Sequential Reciprocity," Levine's Working Paper Archive 563824000000000090, David K. Levine.
  7. 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.
  8. Jeffrey Racine, 2008. "Nonparametric econometrics: a primer (in Russian)," Quantile, Quantile, issue 4, pages 7-56, March.
  9. Pierpaolo Battigalli & Martin Dufwenberg, 2007. "Guilt in Games," American Economic Review, American Economic Association, vol. 97(2), pages 170-176, May.
  10. 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.
  11. 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.
  12. 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.
  13. Charles F. Manski, 2004. "Measuring Expectations," Econometrica, Econometric Society, vol. 72(5), pages 1329-1376, 09.
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