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Reference-dependent valuations of risk: Why willingness-to-accept exceeds willingness-to-pay

Publication ,  Journal Article
Viscusi, WK; Huber, J
Published in: Journal of Risk and Uncertainty
February 1, 2012

The gap between willingness-to-pay (WTP) and willingness-to-accept (WTA) benefit values typifies situations in which reference points-and direction of movement from reference points-are consequential. Why WTA-WTP discrepancies arise is not well understood. We generalize models of reference dependence to identify separate reference dependence effects for increases and decreases in environmental health risk probabilities, for increases and decreases in costs, and reference dependence effects embodying the interaction of two changes. We estimate separate reference dependence effects for the four possible cost and health risk change combinations using data from our choice-based experiment for a nationally representative sample of 4,745 households. The WTA-WTP gap is due largely to the reference dependence effects related to costs. Standard models of reference dependence are not consistent with the results, as there is an interactive effect. Estimated income effects are under a penny and thus cannot account for higher values of WTA relative to WTP. © 2011 Springer Science+Business Media, LLC.

Duke Scholars

Published In

Journal of Risk and Uncertainty

DOI

EISSN

1573-0476

ISSN

0895-5646

Publication Date

February 1, 2012

Volume

44

Issue

1

Start / End Page

19 / 44

Related Subject Headings

  • Economics
  • 3802 Econometrics
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics
 

Citation

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Viscusi, W. K., & Huber, J. (2012). Reference-dependent valuations of risk: Why willingness-to-accept exceeds willingness-to-pay. Journal of Risk and Uncertainty, 44(1), 19–44. https://doi.org/10.1007/s11166-011-9132-2
Viscusi, W. K., and J. Huber. “Reference-dependent valuations of risk: Why willingness-to-accept exceeds willingness-to-pay.” Journal of Risk and Uncertainty 44, no. 1 (February 1, 2012): 19–44. https://doi.org/10.1007/s11166-011-9132-2.
Viscusi WK, Huber J. Reference-dependent valuations of risk: Why willingness-to-accept exceeds willingness-to-pay. Journal of Risk and Uncertainty. 2012 Feb 1;44(1):19–44.
Viscusi, W. K., and J. Huber. “Reference-dependent valuations of risk: Why willingness-to-accept exceeds willingness-to-pay.” Journal of Risk and Uncertainty, vol. 44, no. 1, Feb. 2012, pp. 19–44. Scopus, doi:10.1007/s11166-011-9132-2.
Viscusi WK, Huber J. Reference-dependent valuations of risk: Why willingness-to-accept exceeds willingness-to-pay. Journal of Risk and Uncertainty. 2012 Feb 1;44(1):19–44.
Journal cover image

Published In

Journal of Risk and Uncertainty

DOI

EISSN

1573-0476

ISSN

0895-5646

Publication Date

February 1, 2012

Volume

44

Issue

1

Start / End Page

19 / 44

Related Subject Headings

  • Economics
  • 3802 Econometrics
  • 3801 Applied economics
  • 3502 Banking, finance and investment
  • 1502 Banking, Finance and Investment
  • 1402 Applied Economics