Willingness-to-Pay and Willingness-to-Accept Are Probably Less Correlated Than You Think

63 Pages Posted: 20 Jun 2017

See all articles by Jonathan Chapman

Jonathan Chapman

New York University (NYU) - New York University Abu Dhabi

Pietro Ortoleva

Princeton University - Department of Economics

Erik Snowberg

California Institute of Technology - Division of the Humanities and Social Sciences; National Bureau of Economic Research (NBER)

Colin Camerer

California Institute of Technology - Division of the Humanities and Social Sciences

Mark Dean

Brown University - Department of Economics; New York University (NYU) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 30, 2017

Abstract

Willingness to pay (WTP) and willingness to accept (WTA) a monetary amount for a lottery should be closely related. In data from an incentivized survey of a representative sample of 3,000 U.S. adults, we find that WTA and WTP for a lottery are, at best, weakly correlated. Across all respondents, the correlation is slightly negative. For the subgroups that we examine, the correlation is almost always small, typically statistically insignificant, and often negative. The exception is respondents who score highly on a within-study IQ test, where the correlation is around 0.2. A meta-study of similar lab experiments with university students also shows a correlation of around 0.15-0.2. While poorly related to each other, our measures of WTA and WTP are strongly related to different measures of risk aversion, and relatively stable across time. These various patterns allow us to show that this lack of relationship between WTA and WTP is compatible with existing theories, such as Prospect Theory and Stochastic Reference Dependence, only under very specific, and unlikely, correlational structures between parameters. We suggest a simpler formalization.

Keywords: Willingness to Pay, Willingness to Accept, Endowment Effect, Loss Aversion, Risk Aversion

Suggested Citation

Chapman, Jonathan and Ortoleva, Pietro and Snowberg, Erik and Camerer, Colin F. and Dean, Mark R. W. and Dean, Mark R. W., Willingness-to-Pay and Willingness-to-Accept Are Probably Less Correlated Than You Think (May 30, 2017). Available at SSRN: https://ssrn.com/abstract=2988958 or http://dx.doi.org/10.2139/ssrn.2988958

Jonathan Chapman

New York University (NYU) - New York University Abu Dhabi ( email )

PO Box 129188
Abu Dhabi
United Arab Emirates

Pietro Ortoleva

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Erik Snowberg (Contact Author)

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Colin F. Camerer

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
Pasadena, CA 91125
United States
626-395-4054 (Phone)
626-432-1726 (Fax)

Mark R. W. Dean

Brown University - Department of Economics ( email )

64 Waterman Street
Providence, RI 02912
United States

HOME PAGE: http://www.econ.brown.edu/fac/Mark_Dean/

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States

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