Understanding the WTA-WTP Gap Through Attitudes, Feelings, Risk Preferences and Personality

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Understanding the WTA-WTP Gap Through Attitudes, Feelings, Risk Preferences and Personality. Nikolaos Georgantzís Daniel Navarro-Martínez. CREED-CEDEX-UEA Meeting 2008. Introduction. - PowerPoint PPT Presentation

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  • CREED-CEDEX-UEA Meeting 2008

    Nikolaos GeorgantzsDaniel Navarro-Martnez

    Understanding the WTA-WTP Gap Through Attitudes, Feelings, Risk Preferences and Personality

    IAREP 2007 Conference

  • IntroductionWTA-WTP gap: difference between the lowest amount of money that owners are willing to accept for giving up a particular object and the highest amount that non-owners are willing to give up to acquire it.It is one of the most widely documented phenomena in behavioural economics (hundreds of different studies related to it).Basic fact: at least under some circumstances (which are relevant to economics) a systematic WTA-WTP gap appears. General motivation for this experiment: to study, in a comprehensive way, the psychological basis for the WTA-WTP gap in the cases in which it appears.

  • Design (1)Standard WTA-WTP economic experiment:

    Between-subjects design, with 2 different treatments. WTP treatment: subjects value the target good without owning it (50 subjects). WTA treatment: subjects value the target good once they own it (49 subjects).

    Target good: bottle of wine.

    Elicitation mechanism: Becker-DeGroot-Marschak (1964) procedure (BDM).

  • AM 1: at the beginning of the sessions, consisting of 5 items (7 point Likert-type scales, from -3 to 3, for general liking, attitude towards having the good, attractiveness, design and quality) + 1 binary measure of familiarity with the good.

    AM 2: after subjects in the WTA treatment have received the good, consisting of 6 items (7 point Osgood-type scales, from -3 to 3, for appearance, attractiveness, quality, taste, refinement and general liking).

    Design (2)Including 4 additional features to try to understand which psychological processes are producing the gap:

    Example:Example:Measurements of attitudes towards the target good at 2 different points of the sessions (AM 1 and AM 2):

  • Design (3)Measurement of feelings about owning the good (FM): after subjects in the WTA treatment have received the good, consisting of 4 items for positive feelings and 4 items for negative feelings (4 point adjective rating scales, from 0 to 3, for happy, good, pleased, exited, upset, uncomfortable, awkward and bad).

    Example:

  • Measurement of risk attitudes, through a multiple-lottery choice task:

    Design (4)Coef. of RRA, with Structure: (CRRA)

  • Measurement of personality, through the NEO-FFI test. Big Five personality dimensions: Neuroticism (N), Extraversion (E), Openness to Experience (O), Agreeableness (A) and Conscientiousness (C).

    Design (5)Subordinate dimensions or facets:Neuroticism:

    AnxietyHostilityDepressionSelf-ConsciousnessImpulsivenessVulnerability to stressExtraversion:

    WarmthGregariousnessAssertivenessActivityExcitement SeekingPositive EmotionOpenness to Experience:

    FantasyAestheticsFeelingsActionsIdeasValuesAgreeableness:

    TrustStraightforwardnessAltruismComplianceModestyTendermindednessConscientiousness:

    CompetenceOrderDutifulnessAchievement StrivingSelf-DisciplineDeliberation

  • Design (6)Sequences:

    WTP treatment

    WTA treatment

    *The measurement of risk attitudes was done as part of previous sessions.

  • Main hypotheses to be testedThe WTA-WTP gap can be divided in 2 phases, which correspond with different psychological processes: A) a phase of ownership and B) a phase of possible loss.

    In phase A, a gap appears due to an attitude change towards the objective good, caused by 1) an association of it with the self or 2) by cognitive dissonance (between a negative pre-existing attitude and accepting to own the good).

    In phase A, a gap appears due to a change in subjects feelings, caused by receiving the good.

    In phase B, a gap appears due to aversion to loss produced by uncertainty regarding the good (regret aversion).

  • Results (1)Very clear WTA-WTP gap:

  • Results (2)No significant gap in terms of attitudes (AM 2):

    No significant gaps in terms of attitudes (AM 2):

    Always significant WTA-WTP gaps:Dividing the sample according to initial attitudes (AM 1) (to check for cognitive dissonance effects):

  • Results (3)Clear gap in terms of positive feelings (FM):

    Item 1Item 2Item 3Item 4

  • Results (4)Clear effect of familiarity and risk attitudes on monetary valuations (consistent with the uncertainty hypothesis):

  • Results (5)Quite clear pattern of personality influences on monetary valuations:

    No significant pattern of personality influences on positive feelings (FM):

  • ConclusionsAttitude change (of any kind) is not a necessary condition for the WTA-WTP gap to appear and it does not seem to be an important part of the disparities found in most economic experiments.Enhanced positive feelings for receiving the good seem to account for an important part of the gap.Aversion to loss generated by uncertainty regarding the good does also make a significant contribution to the WTA-WTP gap (as familiarity and risk aversion measures show).Different personality profiles are associated with high monetary valuations in the WTP and WTA treatments, in a way which makes the gap depend on the degree of extraversion (E), agreeableness (A) and conscientiousness (C) of subjects.The findings above show that the WTA-WTP gap is best understood dividing it in 2 phases, which correspond with different psychological process: A) a phase of ownership and B) a phase of possible loss.

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