Willingness to Pay and Willingness to Accept are Probably Less Correlated Than You Think

TitleWillingness to Pay and Willingness to Accept are Probably Less Correlated Than You Think
Publication TypeJournal Article
Year of Publication2017
AuthorsChapman J, Dean M, Ortoleva P, Snowberg E, Camerer C
JournalNBER Working Paper Series
Pagination66
KeywordsIQ, loss aversion, prospect theory, stochastic reference dependence, survey, willingness to accept, Willingness to pay, WTA, WTP
AbstractAn enormous literature documents that willingness to pay (WTP) is less than willingness to accept (WTA) a monetary amount for an object, a phenomenon called the endowment effect. Using data from an incentivized survey of a representative sample of 3,000 U.S. adults, we add one (probably) surprising additional finding: WTA and WTP for a lottery are, at best, slightly correlated. Across all respondents, the correlation is slightly negative. A meta-study of published experiments with university students shows a correlation of around 0.15–0.2, consistent with the correlation in our data for high-IQ respondents. While poorly related to each other, WTA and WTP are closely related to different measures of risk aversion, and relatively stable across time. We show that the endowment effect is not related to individual-level measures of loss aversion, counter to Prospect Theory or Stochastic Reference Dependence.
URLhttp://www.nber.org/papers/w23954
DOI10.3386/w23954