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On the interpretation of the WTP/WTA gap as imprecise utility: an axiomatic analysis

Raphaël Giraud ()

Economics Bulletin, 2010, vol. 30, issue 1, 692-701

Abstract: 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 (search for similar items in EconPapers)
JEL-codes: D0 D1 (search for similar items in EconPapers)
Date: 2010-03-10
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