Willingness to Accept, Willingness to Pay, and Loss Aversion
We use four incentivized representative surveys to study the endowment effect for lotteries in 4,000 U.S. adults. We replicate the standard finding of an endowment effect—the divergence between Willingness to Accept (WTA) and Willingness to Pay (WTP), but document three new findings. First, we find little evidence that the endowment effect is related to loss aversion for risky prospects, counter to predictions of popular theories in economics. Second, WTA and WTP not only diverge, but are, at best, weakly correlated. Third, WTA and WTP strongly relate to other aspects of risk preferences. The structure of these behaviors points to different theories of the endowment effect.
We thank Douglas Bernheim, Benedetto De Martino, Stefano Della Vigna, Xavier Gabaix, Daniel Gottlieb, Eric Johnson, David Laibson, Graham Loomes, Matthew Rabin, Jan Rivkin, Peter Wakker, Michael Woodford, Leeat Yariv, and seminar audiences for 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.