Willingness to Pay and Willingness to Accept are Probably Less Correlated Than You Think
An 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.
We thank Douglas Bernheim, Benedetto De Martino, Stefano Della Vigna, Eric Johnson, Graham Loomes, Jan Rivkin, Peter Wakker, Micheal Woodford, and the participants of seminars and conferences for their useful comments and suggestions. Evan Friedman and Khanh Ngoc Han Huynh provided research assistance. Camerer, Ortoleva, and Snowberg gratefully acknowledge the financial support of NSF Grant SMA-1329195. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.