Hedonic preferences, symmetric loss aversion and the willingness to pay-willingness to accept gap

Mogens Fosgerau ()

MPRA Paper from University Library of Munich, Germany

Abstract: The results in this paper are relevant for the application of valuation studies in cost-benefit analysis in the presence of the willingness to pay - willingness to accept gap. We consider a consumer who makes choices based on choice preferences exhibiting reference-dependence and loss aversion. Choice preferences are related to underlying hedonic preferences through the marginal rates of substitution (MRS) at the reference. Our issue is the identification of hedonic preferences relevant to welfare economic analysis. We show that the hedonic MRS is identified from reference-dependent choices if loss aversion exhibits a certain symmetry. Moreover, we show that this symmetry is rational in the sense that it leads to maximal expected hedonic utility when choices are made under reference-dependent choice preferences.

Keywords: Behavioral public economics; valuation of non-market goods; prospect theory; loss aversion (search for similar items in EconPapers)
JEL-codes: D01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe and nep-upt
Date: 2008
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:10041

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