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Raphaël Giraud
''On the interpretation of the WTP/WTA gap as imprecise utility: an axiomatic analysis''
( 2010, Vol. 30 No.1 )
The willingness-to-pay (WTP) and willingness-to-accept (WTA) disparity reported in a rich empirical literature suggests that people have only an imprecise idea of how valuable a good is to them. In this note, we provide axioms that formally relate this imprecision in the evaluation of a good to the imprecision in the utility function, in the sense that x is strictly preferred to y iff the WTP for x is larger than the WTA for y. The preference relation is therefore an interval order (Fishburn (1970)) with ``interval utility' equal to the WTP/WTA interval itself. Applications to preference for liquidity and the strength of the status quo bias are given.
Keywords: WTA/WTP gap, interval orders, imprecise utility, reference-dependent preferences, status quo bias
D1 - Household Behavior: General
Manuscript Received : Aug 22 2009 Manuscript Accepted : Mar 10 2010

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