The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

ISONI, ANDREA

2011-01-01

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Abstract

Several experimental studies have reported that an otherwise robust regularity-the disparity between Willingness-To-Accept and Willingness-To-Pay-tends to be greatly reduced in repeated markets, posing a serious challenge to existing reference-dependent and reference-independent models alike. This article offers a new account of the evidence, based on the assumptions that individuals are affected by good and bad deals relative to the expected transaction price (price sensitivity), with bad deals having a larger impact on their utility (`bad-deal' aversion). These features of preferences explain the existing evidence better than alternative approaches, including the most recent developments of loss aversion models