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Experimental Evidence on the Divergence Between Measures of Willingness to Pay and Willingness to Accept--The Role of Value Uncertainty

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  • Peter R. Mueser
  • Jay K. Dow

Abstract

One of the most robust findings in experimental analysis in economics is that subjects often display a large discrepancy between the dollar value they are willing to accept in order to sell an item (WTA) and the dollar value they are willing to pay to purchase it (WTP). We suggest that often when individuals face purchase or sale decisions, the actual private value of an object is uncertain. This is significant because, in a large number of market environments, such uncertainty will cause individuals to display a disparity between WTA and WTP. Our review of the literature confirms that the WTA-WTP disparity does tend to grow where we might expect that estimating an object's value is more difficult. We then turn to our own experiments that attempt to measure such uncertainty more directly and examine how it relates to the WTA-WTP disparity. Our results confirm the hypothesis of a positive relationship.

Suggested Citation

  • Peter R. Mueser & Jay K. Dow, 1998. "Experimental Evidence on the Divergence Between Measures of Willingness to Pay and Willingness to Accept--The Role of Value Uncertainty," Experimental 9803001, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpex:9803001
    Note: 26 pages (title page, abstract page, 21 numbered pages, 3 tables), WordPerfect 6.1
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    References listed on IDEAS

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    Cited by:

    1. Dennis Dittrich & Werner Guth & Boris Maciejovsky, 2005. "Overconfidence in investment decisions: An experimental approach," The European Journal of Finance, Taylor & Francis Journals, vol. 11(6), pages 471-491.

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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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