Working Paper

Pricing risk and ambiguity: The effect of perspective taking

Authors

  • Stefan T. Trautmann
  • Ulrich Schmidt
Publication Date

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.

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Info

JEL Classification
C91, D81

Key Words

  • ambiguity
  • comparative ignorance
  • WTP-WTA disparity