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The Willingness to Pay/Willingness to Accept Gap, the “Endowment Effect,” Subject Misconceptions and Experimental Procedures for Eliciting Valuations

Plott, Charles R. and Zeiler, Kathryn (2003) The Willingness to Pay/Willingness to Accept Gap, the “Endowment Effect,” Subject Misconceptions and Experimental Procedures for Eliciting Valuations. Social Science Working Paper, 1132R. California Institute of Technology , Pasadena, CA. (Unpublished) https://resolver.caltech.edu/CaltechAUTHORS:20170802-163705473

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Abstract

We conduct experiments to explore the possibility that subject misconceptions, as opposed to a particular theory of preferences referred to as the “endowment effect,” account for reported gaps between willingness to pay (“WTP”) and willingness to accept (“WTA”). Two facts are evident in the literature. First, there is no consensus regarding the nature or robustness of the WTA-WTP gap. Secondly, while experimenters are very concerned to avoid subject misconceptions, there is no consensus about their fundamental properties or how they might be avoided. Instead, experimenters have revealed different conceptions of the phenomenon through different types of experimental procedures and controls. Such controls involve the role of anonymity, elicitation mechanisms, practice, training and binding outcome experiences applied separately or in different combinations. The resulting pattern of research leaves open the possibility that the widely differing reports of a gap between WTP and WTA could be due to an incomplete science regarding subject misconceptions. The lack of a theory of misconceptions is replaced by what we will call a "revealed theory" methodology in which theories implicit in experimental procedures found in the literature are at the heart of the new experimental design. Thus, the approach reported here reflects an attempt to simultaneously control for all dimensions of concern found in the literature. To this end our procedures modify the Becker-DeGroot-Marschak mechanism used in previous studies to elicit values. In addition, our procedures supplement commonly used procedures by providing extensive training on the elicitation mechanism before subjects provide WTP and WTA responses. Experiments were conducted using both lotteries and mugs, goods frequently used in endowment effect experiments. Using the modified procedures, we find no support for the hypothesis that WTA is significantly greater than WTP. In addition, we find no support that an observed gap can be convincingly interpreted as an endowment effect and conclude that further evidence is required before convincing interpretations of any observed gap can be advanced.


Item Type:Report or Paper (Working Paper)
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http://www.jstor.org/stable/29783698Related ItemComment on published version by Andrea Isoni, Graham Loomes and Robert Sugden
Additional Information:The financial support of the Laboratory of Experimental Economics and Political Science is gratefully acknowledged. We thank Colin Camerer, Daniel Klerman, Robert Sherman, Eric Talley, Richard Thaler and Leeat Yariv for helpful discussions and comments. In addition, we are grateful for comments provided during presentations of earlier versions of this work at the University of Southern California Law School and the California Institute of Technology’s Experimental Economics Workshop. All errors are ours. Published as Plott, C., & Zeiler, K. (2005). The Willingness to Pay-Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations. The American Economic Review, 95(3), 530-545.
Group:Social Science Working Papers
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Funding AgencyGrant Number
Caltech Laboratory for Experimental Economics and Political ScienceUNSPECIFIED
Subject Keywords:Misconception, Coffee mugs, Lotteries, Endowment effect, Experimental procedures, Experiment design, Statistical median, Null hypothesis, Prospect theory, Mechanism design
Series Name:Social Science Working Paper
Issue or Number:1132R
Record Number:CaltechAUTHORS:20170802-163705473
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20170802-163705473
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:79799
Collection:CaltechAUTHORS
Deposited By: Jacquelyn Bussone
Deposited On:07 Aug 2017 18:18
Last Modified:03 Oct 2019 18:24

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