A Dynamic Explanation of the Willingness to Pay and Willingness to Accept Disparity
Evidence from laboratory experiments suggests that important disparities exist between willingness to pay (WTP) and compensation demanded for the same good. This study advances, and experimentally tests, a new explanation of the WTP/WTA disparity--a dynamic theory based on the presence of commitment costs. We find that the commitment cost theory combined with a simple behavioral anomaly is able to lend insights into the causes and severity of the WTA/WTP disparity. Further, we find that market experience attenuates the behavioral anomaly, consistent with the notion that no value disparity exists for agents with sufficient market experience.
Dan Ariely, Glenn Harrison, Danny Kahneman, Liesl Koch, and Bob Sugden provided useful remarks on an earlier version of this study. Thanks to seminar participants at several universities and conferences, to two anonymous referees, and a co-editor for providing useful comments. Any errors remain our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Catherine L. Kling & John A. List & Jinhua Zhao, 2013. "A Dynamic Explanation Of The Willingness To Pay And Willingness To Accept Disparity," Economic Inquiry, Western Economic Association International, vol. 51(1), pages 909-921, 01. citation courtesy of