An Experimental Investigation of the Disparity between WTA and WTP for Lotteries

Stefan Traub () and Ulrich Schmidt

No 2006-09, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics

Abstract: In this paper we experimentally investigate the disparity between willingness-to-accept (WTA) and willingness-to-pay (WTP) for risky lotteries. The direction of the income effect is reversed by endowing subjects with the highest price of a lottery when asking the WTP question. Our results show that the income effect is too small to be the only source of the disparity. Since the disparity concentrates on a subsample of subjects, parametric and nonparametric tests of the WTA-WTP ratio may lead to contradictory results. The disparity is significantly reduced when background risk is introduced. That is, putting subjects always into a risky position could improve the contingent valuation method which is often concerned with the assessment of risky situations such as health risks, automobile safety, etc.

Keywords: WTA-WTP disparity; lotteries; background risk; contingent valuation (search for similar items in EconPapers)
JEL-codes: C91 D81 (search for similar items in EconPapers)
Date: 2006
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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https://www.econstor.eu/bitstream/10419/22014/1/EWP-2006-09.pdf (application/pdf)

Related works:
Journal Article: An Experimental Investigation of the Disparity Between WTA and WTP for Lotteries (2009)
Working Paper: An experimental investigation of the disparity between WTA and WTP for lotteries (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:4760

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