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Free keywords:
WTP-WTA gap, Risk, Elicitation mechanisms, Probability weighting
JEL:
D81 - Criteria for Decision-Making under Risk and Uncertainty
JEL:
D03 - Behavioral Microeconomics: Underlying Principles
JEL:
C91 - Laboratory, Individual Behavior
Abstract:
We experimentally investigate the Willingness To Pay (WTP)- Willingness To Accept (WTA) gap in the evaluation of risky assets, i.e., binary monetary lotteries. We compare the random price mechanism and an elicitation method preserving truly social trading, without theoretically sacrificing mutual incentive compatibility. The usual asymmetry in evaluation by sellers and buyers is confirmed, for both elicitation mechanisms. An econometric estimation sheds new light on the cause: potential buyers are over-pessimistic and systematically underweight the probability of a good outcome.
