Research provides evidence that the method chosen to elicit value has an important effect on a person’s valuation. We hypothesize that role has a crucial effect on decision makers’ elicited values: Buyers prefer to pay less and sellers prefer to collect more. We conduct experimental sessions and replicate the disparity between willingness to pay and willingness to accept. We conduct additional sessions in which role is stripped away: Endowed decision makers provide values that are used to determine a price at which anonymous others transact. Importantly, decision makers’ earnings in the experiment are not affected by the elicited values, but the endowments influence decision makers’ valuations. Our findings suggest that decision makers consider their relative standing, in comparison to anonymous others, in providing valuations. The disparity between willingness to pay and willingness to accept disappears when decision makers’ endowments ensure that they are at least as well off as other participants.
JEL classification: C91
Key words: willingness to accept, willingness to pay, endowment effect
The authors gratefully acknowledge the financial support of the Federal Reserve Bank of Atlanta and the helpful comments of Paul Ferraro, Ann Gillette, and Mark Rider. The views expressed here are the authors’ and are not necessarily those of the Federal Reserve Bank of Atlanta or the Federal Reserve System. Any remaining errors are the authors’ responsibility.
Please address questions regarding content to Lucy F. Ackert, Department of Economics and Finance, Michael J. Coles College of Business, Kennesaw State University, 1000 Chastain Road, Kennesaw, Georgia 30144, (770) 423-6111, firstname.lastname@example.org, and Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, Georgia 30309-4470; Bryan K. Church, College of Management, Georgia Institute of Technology, Atlanta, Georgia 30332-0520, (404) 894-3907, email@example.com; or Gerald P. Dwyer, Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street N.E., Atlanta, Georgia 30309-4470, (404) 498-7095, firstname.lastname@example.org.
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