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

Introduction  WTA-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: 1)Measurements of attitudes towards the target good at 2 different points of the sessions (AM 1 and AM 2):

Design (3) 2)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:

3)Measurement of risk attitudes, through a multiple-lottery choice task: Design (4) Coef. of RRA, with Structure: (CRRA)

4)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: Anxiety Hostility Depression Self-Consciousness Impulsiveness Vulnerability to stress Extraversion: Warmth Gregariousness Assertiveness Activity Excitement Seeking Positive Emotion Openness to Experience: Fantasy Aesthetics Feelings Actions Ideas Values Agreeableness: Trust Straightforwardness Altruism Compliance Modesty Tendermindedness Conscientiousness: Competence Order Dutifulness Achievement Striving Self-Discipline Deliberation

Design (6) Sequences: WTP treatment WTA treatment *The measurement of risk attitudes was done as part of previous sessions.

Main hypotheses to be tested  The 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 2 Item 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):

Conclusions  Attitude 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.