We will use this space each week in the news blast for Justin to share new ideas he thinks may be of interest for our behavioral & experimental community. If you ever have ideas for topics, please share your ideas with
This Week's BRITE Idea:
A new academic year brings a new installment of the BRITE Ideas part of the news blast. This week Justin wants to highlight an
by Chapman, Dean, Ortoleva, Snowberg, and Camerer that came out this summer.
The paper looks at willingness to pay (WTP) and willingness to accept (WTA) gaps. The common finding is that WTP is less than WTA, which is the classic "endowment effect". However, in this paper the authors establish a new pattern -- namely that WTP and WTA for the same individual evaluating the same financial lottery not only have this gap but also show very low correlation with each other. So in some sense it appears the two measures are simply capturing distinct and different things about attitudes toward risk.
The authors argue that theories of reference dependence could help rationalize this low correlation, but that it takes some pretty unique parameterizations of reference-dependent models to do so. Ultimately they argue that there is a need for "more theories and empirical studies of the process of buying and selling" to better understand why these measures show such low correlation.