REFERENCE DEPENDENCE AND OTHER BEHAVIORAL FINDINGS: THE LIKELIHOOD OF SERIOUS EVALUATION AND POLICY BIASES

Jack Knetsch

The Singapore Economic Review (SER), 2016, vol. 61, issue 03, 1-11

Abstract: Standard economic theory correctly prescribes willingnes-to-pay (WTP) to most accurately assess the welfare change of gains and WTA to measure the welfare change of losses, and, in recognition of reference dependence, reductions of losses. However, its additional assumption of near equivalence between the measures, used to justify the current practice of using WTP for essentially all analyses, has been contradicted by numerous empirical tests. For many areas, and especially environmental quality and health and safety, this institutionally encouraged continuing reliance on presumption over evidence likely leads to serious bias in benefit-cost and related analyses and distortions in policy guidance.

Keywords: Reference Dependence; Willing-to-Pay; Willing-to-Accept (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1142/S0217590816400142

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