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Hedonic preferences, symmetric loss aversion and the willingness to pay-willingness to accept gap

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  • Fosgerau, Mogens

Abstract

The results in this paper are relevant for the application of valuation studies in cost-benefit analysis in the presence of the willingness to pay - willingness to accept gap. We consider a consumer who makes choices based on choice preferences exhibiting reference-dependence and loss aversion. Choice preferences are related to underlying hedonic preferences through the marginal rates of substitution (MRS) at the reference. Our issue is the identification of hedonic preferences relevant to welfare economic analysis. We show that the hedonic MRS is identified from reference-dependent choices if loss aversion exhibits a certain symmetry. Moreover, we show that this symmetry is rational in the sense that it leads to maximal expected hedonic utility when choices are made under reference-dependent choice preferences.

Suggested Citation

  • Fosgerau, Mogens, 2008. "Hedonic preferences, symmetric loss aversion and the willingness to pay-willingness to accept gap," MPRA Paper 10041, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:10041
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    References listed on IDEAS

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    1. Daniel Kahneman & Robert Sugden, 2005. "Experienced Utility as a Standard of Policy Evaluation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 32(1), pages 161-181, September.
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    Cited by:

    1. Katrine Hjorth & Mogens Fosgerau, 2011. "Loss Aversion and Individual Characteristics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(4), pages 573-596, August.

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    More about this item

    Keywords

    Behavioral public economics; valuation of non-market goods; prospect theory; loss aversion;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles

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