The willingness-to-accept/willingness-to-pay disparity in repeated markets: Loss aversion or 'Bad-Deal' aversion?

Andrea Isoni

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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 referenceindependent models alike. This paper 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 ('baddeal' aversion). These features of preferences explain the existing evidence better thanalternative approaches, including the most recent developments of loss aversion models.
Original languageEnglish
Pages (from-to)1-21
Number of pages21
JournalWorking Paper - Centre for Social and Economic Research on the Global Environment
Issue number1
Publication statusPublished - 2009

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