Willingness to Pay and Willingness to Accept are Probably Less Correlated Than You Think AND Econographics: Towards a Refined Representation of Behavioral Economics

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Date and Time: 
Monday, May 7, 2018
2:00 pm – 3:30 pm
Speaker: 
Erik Snowberg
Vancouver School of Economics
Abstract: 

 

Title: Willingness to Pay and Willingness to Accept are Probably Less Correlated Than You Think

 

Abstract: 

An enormous literature documents that willingness to pay (WTP) is less than willingness to accept (WTA) a monetary amount for an object, a phenomenon called the endowment effect. Using data from an incentivized survey of a representative sample of 3,000 U.S. adults, we add one (probably) surprising additional finding: WTA and WTP for a lottery are, at best, slightly correlated. Across all respondents, the correlation is slightly negative. A meta-study of published experiments with university students shows a correlation of around 0.15{0.2, consistent with the correlation in our data for high-IQ respondents. While poorly related to each other, WTA and WTP are closely related to different measures of risk aversion, and relatively stable across time. We show that the endowment effect is not related to individual-level measures of loss aversion from risky choice, counter to Prospect Theory and Stochastic Reference Dependence

 

AND

 

Title: Econographics: Towards a Refined Representation of Behavioral Economics

 

 

Abstract: We study the pattern of correlations across a large number of behavioral regularities, with the goal of creating an empirical basis for more comprehensive theories of decision making. We elicit 21 behaviors using an incentivized survey on a representative sample (n = 1;000) of the U.S. population. Our data show a clear pattern of high and low correlations, with important implications for theoretical representations of social and risk preferences. Using principal components analysis, we reduce the 21 variables to six components corresponding to clear clusters of correlations. We examine the relationship between these components, cognitive ability and demographics, and qualitative self-reports of preferences.