Rothschild, and three most helpful referees. Very special thanks for many years of helpful insights are due to Richard Day and Luigi Ermini. Hamlet: “What a piece of work is a man! how noble in reason! how infinite in faculties!”

Do not reference without permission of the authors. We conduct experiments to explore the possibility that subject misconceptions, as opposed to a particular theory of preferences referred to as the “endowment effect,” account for reported gaps between willingness to pay (“WTP”) and willingness to accept (“WTA”). Two facts are evident in the literature. First, there is no consensus regarding the nature or robustness of the WTA-WTP gap. Secondly, while experimenters are very concerned to avoid subject misconceptions, there is no consensus about their fundamental properties or how they might be avoided. Instead, experimenters have revealed different conceptions of the phenomenon through different types of experimental procedures and controls. Such controls involve the role of anonymity, elicitation mechanisms, practice, training and binding outcome experiences applied separately or in different combinations. The resulting pattern of research leaves open the possibility that the widely differing reports of a gap between WTP and WTA could be due to an incomplete science regarding

We present an empirical study of willingness-to-pay for protecting information (we term it willingness-to-protect) and willingness-to-accept a proposal to sell information (willingness-to-accept). We conducted the study in two parts. In the first part we presented the study participants with two yes/no offers, asking them to protect themselves against information release for a fixed amount of money, or offering them a fixed amount of money to release their information. In the second part we asked subjects to specify their maximum willingness-to-protect for personal data and their minimum willingness-to-accept for the release of personal information. Our results show a clear preference for money over data across the vast majority of participants in both the protection and the release scenarios, even when the monetary advantage of releasing or not protecting in the fixed amount choice situations is very small. In all hypothetical scenarios, we find that the average willingness-to-accept is dramatically higher than the average willingness-to-protect.

Substantial understatement of the degree of quality improvement during transition, and, therefore, a substantial overstatement of inflation rates has resulted in a serious downward bias in estimates of the rate of growth of post-communist economies. The move to free markets has apparently improved consumers ’ welfare more by improving what they can purchase than by increasing how much they can purchase. Examining 63 products, focus group respondents in the Czech Republic reported that if they were to purchase the 1990 quality product today they would only be willing to do so at a average of 54 per cent of the current price for the current quality product. This implies that the actual increase in prices for the decade for these products 66 per cent instead of the official 139 per cent. Overall, mismeasurement of quality changes may have understated Czech growth rates during the first decade after communism by as much as 5 percentage point per year. Abstrakt

We find that large increases in age do not reduce the endowment effect, supporting the hypothesis that people have reference-dependent preferences which are not changed by repeated experience getting and giving up goods. JEL Classification: D1

Actual possession of an item has been shown to increase an owner’s valuation of it, a phenomenon termed the “endowment effect ” (Thaler, 1980). We hypothesize that temporarily being the high bidder during an auction induces a “pseudo-endowment effect. ” This effect may foster attachment to an item during the auction and thus promote overbidding. We examine this effect in two studies. In the first study, we examined bids from 1088 eBay Motors ’ passenger vehicle auctions to test for evidence of the pseudo-endowment effect and for evidence that this effect is reduced by market experience. Pseudo-endowment is measured using two proxies: the amount of time a person has participated in an individual eBay Motors ’ passenger vehicle auction and the aggregated duration that a bidder is listed as the high bidder for that auction. Both proxies are found to be positively and significantly associated with the probability that the bidder will rebid in a single second-price auction. We further find that the pseudo-endowment effect is more pronounced than the effects of auction fever. We also find that these non-normative effects are reduced by market experience. The second study is a variation of the classic mug experiment in which we control for opponent effects. Consistent with findings of the field study, we found that the duration of examining an item positively influenced participants ’ bids for the item.

There is considerable empirical and experimental evidence that there is a divergence between willingness-to-accept compensation to give up a good and willingness-to-pay to obtain a good. This divergence persists even when the good in question in small relative to income, a result in apparent conflict with standard economic theory. This paper develops a theoretical bidding model with costly information acquisition to explain this divergence. The model generates a gap between offers to sell and bids to buy consistent with the experimental results. We argue that the model does a better job of explaining empirical and experimental data than either of the two commonly invoked theoretical explanations: the endowment effect and the substitution effect. 3 Information and the Divergence Between Willingness-to-Accept and Willingness-to-Pay I. INTRODUCTION There has been a significant debate over the past two decades about an apparent empirical anomaly regarding willingness-to-accept compensat...

ABSTRACT: This paper examines an application of the contingent valuation (CV) method to measure the compensation required for the siting of a hazardous waste disposal facility. First we discuss the risk valuation literature on the siting of a hazardous waste facility. In this section we discuss past studies using hedonic valuation techniques and the importance of subjective risk assessment. Second, a contingent valuation survey is performed to measure willingness to accept (WTA) using a dichotomous choice referendum framework. Using these data, we test for the internal consistency of the responses and calculate the WTA for siting a hazardous waste disposal facility. We conclude that CV can be used to estimate reasonable measures of WTA and is a potentially useful tool for assessing the compensation required to site a hazardous waste disposal facility.

A bulk of recent evidence suggests that important disparities exist between willingness to pay and compensation demanded for the same good. This paper extends and refutes the generality of these findings by going to a well-functioning marketplace and allowing consumers to swap sports memorabilia. In support of the received literature, I present field evidence that suggests an inefficiently low number of trades occur for naïve traders, suggesting reference-dependent preferences. In contrast, this anomaly is not evident for consumers that have significant trading experience. These results uncover important successes and failures of the theoretical literature, and provide challenges for both neoclassical and reference-dependent theorists.

Experimental methods are central to assessments of environmental valuation approaches that are operationally meaningful. Existing lab experiments focus attention sharply on the embarrassing neglect of hypothetical bias. They also offer constructive solutions, and beg for validation in field