IDEAS home Printed from https://ideas.repec.org/p/lmu/dissen/4901.html
   My bibliography  Save this paper

Predicting the Gap between Willingness to Accept and Willingness to Pay

Author

Listed:
  • Roth, Gerrit

Abstract

People report much larger willingness to accept (WTA) than willingness to pay (WTP) under a broad range of circumstances. This dissertation tries to answer the question when people will report this gap, how large the difference between the two answers will be and what reasons lie behind this behavior: We find that uncertainty about the desire to trade a good lies at the heart of the gap measured in experiments. A formal model extending Prospect Theory by “aversion to risk changes” predicts that the endowment effect increases with uncertainty. Data from our own behavioral experiment confirms the uncertainty hypothesis. When applied to a different phenomenon, so-called “Preference Reversal”, the model can predict when different types of the observed reversals occur, closing an explanatory gap that other theories have left open.

Suggested Citation

  • Roth, Gerrit, 2006. "Predicting the Gap between Willingness to Accept and Willingness to Pay," Munich Dissertations in Economics 4901, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:dissen:4901
    as

    Download full text from publisher

    File URL: https://edoc.ub.uni-muenchen.de/4901/1/Roth_Gerrit.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Harless, David W., 1989. "More laboratory evidence on the disparity between willingness to pay and compensation demanded," Journal of Economic Behavior & Organization, Elsevier, vol. 11(3), pages 359-379, May.
    2. van de Ven, Niels & Zeelenberg, Marcel & van Dijk, Eric, 2005. "Buying and selling exchange goods: Outcome information, curiosity and the endowment effect," Journal of Economic Psychology, Elsevier, vol. 26(3), pages 459-468, June.
    3. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2004. "For Better or for Worse: Default Effects and 401(k) Savings Behavior," NBER Chapters,in: Perspectives on the Economics of Aging, pages 81-126 National Bureau of Economic Research, Inc.
    4. Louis Lévy-Garboua & Claude Montmarquette, 1996. "Cognition In Seemingly Riskless Choices And Judgments," Rationality and Society, , pages 167-185.
    5. Ian Bateman & Alistair Munro & Bruce Rhodes & Chris Starmer & Robert Sugden, 1997. "A Test of the Theory of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 479-505.
    6. List, John A. & Shogren, Jason F., 2002. "Calibration of Willingness-to-Accept," Journal of Environmental Economics and Management, Elsevier, vol. 43(2), pages 219-233, March.
    7. Louis Lévy-Garboua & Claude Montmarquette, 1996. "Cognition In Seemingly Riskless Choices And Judgments," Rationality and Society, , pages 167-185.
    8. 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.
    9. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, Oxford University Press, pages 41-71.
    10. Nape, Steven & Frykblom, Peter & Harrison, Glenn W. & Lesley, James C., 2003. "Hypothetical bias and willingness to accept," Economics Letters, Elsevier, vol. 78(3), pages 423-430, March.
    11. Brigitte C. Madrian & Dennis F. Shea, 2001. "The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1149-1187.
    12. H. Lorne Carmichael & W. Bentley Macleod, 2006. "Welfare Economics with Intransitive Revealed Preferences: A Theory of the Endowment Effect," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 8(2), pages 193-218, May.
    13. Kujal, Praveen & Smith, Vernon L., 2008. "The Endowment Effect," Handbook of Experimental Economics Results, Elsevier.
    14. Shogren, Jason F. & Seung Y. Shin & Dermot J. Hayes & James B. Kliebenstein, 1994. "Resolving Differences in Willingness to Pay and Willingness to Accept," American Economic Review, American Economic Association, vol. 84(1), pages 255-270, March.
    15. Ortona, Guido & Scacciati, Francesco, 1992. "New experiments on the endowment effect," Journal of Economic Psychology, Elsevier, vol. 13(2), pages 277-296, June.
    16. Grether, David M & Plott, Charles R, 1979. "Economic Theory of Choice and the Preference Reversal Phenomenon," American Economic Review, American Economic Association, vol. 69(4), pages 623-638, September.
    17. Brown, Thomas C., 2005. "Loss aversion without the endowment effect, and other explanations for the WTA-WTP disparity," Journal of Economic Behavior & Organization, Elsevier, vol. 57(3), pages 367-379, July.
    18. Bradley Jorgensen & Geoffrey Syme & Brian Bishop & Blair Nancarrow, 1999. "Protest Responses in Contingent Valuation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 14(1), pages 131-150, July.
    19. Brett Inder & Terry O'Brien, 2003. "The Endowment Effect and the Role of Uncertainty," Bulletin of Economic Research, Wiley Blackwell, vol. 55(3), pages 289-301, July.
    20. Loomes, Graham & Starmer, Chris & Sugden, Robert, 1992. "Are Preferences Monotonic? Testing Some Predictions of Regret Theory," Economica, London School of Economics and Political Science, vol. 59(233), pages 17-33, February.
    21. Brookshire, David S & Coursey, Don L, 1987. "Measuring the Value of a Public Good: An Empirical Comparison of Elicitation Procedures," American Economic Review, American Economic Association, vol. 77(4), pages 554-566, September.
    22. Thaler, Richard, 1980. "Toward a positive theory of consumer choice," Journal of Economic Behavior & Organization, Elsevier, vol. 1(1), pages 39-60, March.
    23. Singh, Harinder, 1991. "The disparity between willingness to pay and compensation demanded : Another look at laboratory evidence," Economics Letters, Elsevier, vol. 35(3), pages 263-266, March.
    Full references (including those not matched with items on IDEAS)

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:lmu:dissen:4901. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tamilla Benkelberg). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.