NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Willingness to Pay and Willingness to Accept are Probably Less Correlated Than You Think

Jonathan Chapman, Mark Dean, Pietro Ortoleva, Erik Snowberg, Colin Camerer

NBER Working Paper No. 23954
Issued in October 2017
NBER Program(s):The Asset Pricing Program, The Health Economics Program, The Law and Economics Program, The Labor Studies Program, The Monetary Economics Program, The Public Economics Program, The Political Economy Program

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.

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Document Object Identifier (DOI): 10.3386/w23954

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