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Oben K Bayrak and Bengt Kriström
''Is there a valuation gap? The case of interval valuations''
( 2016, Vol. 36 No.1 )
We extend the literature on the willingness-to-pay/willingness-to-accept (WTP/WTA) disparity by testing two hypotheses, distilled from the literature. We also introduce a modified mechanism for eliciting the subjective valuation range if the individual cannot articulate the subjective value as a precise amount confidently. We elicited valuations for four goods: three ordinary market goods and a lottery ticket. Under the conventional setting in which subjects are asked to state a single precise amount, we observed a significant disparity for the lottery ticket. On the other hand, our key finding is that the disparity disappears under the intervals treatment, suggesting that response format is important, given that earlier experimental studies invariably uses point values (i.e. open ended questions about WTP/WTA). Moreover, for the risky prospect we observe that from their admissible range the buyers state the lower bound as their WTP whereas sellers state the upper bound as their WTA. We conclude that this type of behavior can to some extent explain the observed disparity at least for the risky prospects.
Keywords: Willingness to Pay and Accept Disparity, Valuation Gap, Endowment Effect, Interval Valuation, Imprecise Preferences, Experimental Economics
JEL: C9 - Design of Experiments: General
Q5 - Environmental Economics: General
Manuscript Received : Nov 08 2015 Manuscript Accepted : Feb 12 2016

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