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Willingness-To-Pay and Willingness-To-Accept are Probably Less Correlated than You Think

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

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.

Suggested Citation

  • Jonathan Chapman & Pietro Ortoleva & Erik Snowberg & Colin Camerer & Mark Dean, 2017. "Willingness-To-Pay and Willingness-To-Accept are Probably Less Correlated than You Think," CESifo Working Paper Series 6492, CESifo.
    • Handle: RePEc:ces:ceswps:_6492
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    Cited by:

    1. Jonathan Chapman & Erik Snowberg & Stephanie Wang & Colin Camerer, 2018. "Loss Attitudes in the U.S. Population: Evidence from Dynamically Optimized Sequential Experimentation (DOSE)," NBER Working Papers 25072, National Bureau of Economic Research, Inc.
    2. Jeffrey R. Brown & Arie Kapteyn & Erzo F. P. Luttmer & Olivia S. Mitchell & Anya Samek, 2021. "Behavioral Impediments to Valuing Annuities: Complexity and Choice Bracketing," The Review of Economics and Statistics, MIT Press, vol. 103(3), pages 533-546, July.
    3. Christina McGranaghan & Steven G. Otto, 2022. "Choice uncertainty and the endowment effect," Journal of Risk and Uncertainty, Springer, vol. 65(1), pages 83-104, August.
    4. Johannes G. Jaspersen & Marc A. Ragin & Justin R. Sydnor, 2019. "Predicting Insurance Demand from Risk Attitudes," NBER Working Papers 26508, National Bureau of Economic Research, Inc.
    5. Otto, Philipp E. & Schmidt, Lennard, 2021. "Reservation price uncertainty: Loss, virtue, or emotional heterogeneity?," Journal of Economic Psychology, Elsevier, vol. 87(C).
    6. Basu, Pathikrit & Echenique, Federico, 2020. "On the falsifiability and learnability of decision theories," Theoretical Economics, Econometric Society, vol. 15(4), November.
    7. Jonathan Chapman & Mark Dean & Pietro Ortoleva & Erik Snowberg & Colin Camerer, 2018. "Econographics," NBER Working Papers 24931, National Bureau of Economic Research, Inc.
    8. Jonathan Chapman & Mark Dean & Pietro Ortoleva & Erik Snowberg & Colin Camerer, 2020. "Econographics," Working Papers 2020-75, Princeton University. Economics Department..
    9. Jonathan Chapman & Mark Dean & Pietro Ortoleva & Erik Snowberg & Colin Camerer, 2021. "On the Relation between Willingness to Accept and Willingness to Pay," Working Papers 2021-90, Princeton University. Economics Department..
    10. Flynn, James, 2022. "Salary disclosure and individual effort: Evidence from the National Hockey League," Journal of Economic Behavior & Organization, Elsevier, vol. 202(C), pages 471-497.
    11. Smith, Alec, 2019. "Lagged beliefs and reference-dependent utility," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 331-340.
    12. Christopher P. Chambers & Federico Echenique & Nicolas S. Lambert, 2023. "Recovering utility," Papers 2301.11492, arXiv.org.
    13. Guney, Begum & Richter, Michael & Tsur, Matan, 2018. "Aspiration-based choice," Journal of Economic Theory, Elsevier, vol. 176(C), pages 935-956.

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    More about this item

    Keywords

    willingness to pay; willingness to accept; endowment effect; loss aversion; risk aversion;
    All these keywords.

    JEL classification:

    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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