Kiel Working Papers, Kiel Institute for World Economics
No 1727:
Pricing risk and ambiguity: The effect of perspective taking
Stefan T. Trautmann and Ulrich Schmidt
Abstract: There is a large literature showing that
willingness-to-accept (WTA) is usually much higher than willingness-to-pay
(WTP) in empirical studies although they should be roughly equal according
to traditional economic theory. A second stream of literature shows that
people are typically ambiguity averse, i.e. they prefer lotteries with
known probabilities over lotteries with unknown ones. Our study combines
both streams of literature and analyzes whether there is an interaction
between the WTP-WTA disparity and ambiguity aversion
Keywords: WTP-WTA disparity, ambiguity aversion, comparative ignorance; (follow links to similar papers)
JEL-Codes: C91,; D81; (follow links to similar papers)
14 pages, August 2011
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