Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/28786
Authors: 
Schmidt, Ulrich
Traub, Stefan
Year of Publication: 
2009
Citation: 
[Journal:] Theory and Decision [ISSN:] 0040-5833 [Publisher:] Springer [Place:] Heidelberg [Volume:] 66 [Issue:] 3 [Pages:] 229-262
Abstract: 
In this paper we experimentally investigate the disparity between willingness-to-accept (WTA) and willingness-to-pay (WTP) for risky lotteries. The direction of the income effect is reversed by endowing subjects with the highest price of a lottery when asking the WTP question. Our results show that the income effect is too small to be the only source of the disparity. Since the disparity concentrates on a subsample of subjects, parametric and nonparametric tests of the WTA-WTP ratio may lead to contradictory results. The disparity is significantly reduced when background risk is introduced. That is, putting subjects always into a risky position could improve the contingent valuation method, which is often concerned with the assessment of risky situations such as health risks, automobile safety, etc.
Subjects: 
WTA-WTP disparity
lotteries
background risk
contingent valuation
JEL: 
C91
D81
Persistent Identifier of the first edition: 
Document Type: 
Article

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