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

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

2. 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.

3. 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).

4. Design (2) Measurements of attitudes towards the target good at 2 different points of the sessions (AM 1 and AM 2): • Including 4 additional features to try to understand which psychological processes are producing the gap: • 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). Example: Example:

5. 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:

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

7. Design (5) • 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). 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

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

9. 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).

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

11. Results (2) • No significant gap in terms of attitudes (AM 2): • Dividing the sample according to initial attitudes (AM 1) (to check for “cognitive dissonance effects”): • No significant gaps in terms of attitudes (AM 2): • Always significant WTA-WTP gaps:

12. Results (3) Item 1 Item 2 • Clear gap in terms of positive feelings (FM): Item 3 Item 4

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

14. Results (5) • Quite clear pattern of personality influences on monetary valuations: • No significant pattern of personality influences on positive feelings (FM):

15. 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.