Less willing to pay but more willing to buy: How the elicitation method impacts the valuation of a promotion

Willingness to pay (WTP—how much one is willing to pay for something) and willingness to buy (WTB—whether one is willing to buy something at a given price) are two common methods to elicit valuations and normatively should yield the same valuation order between two options. However, this research finds that WTP and WTB can yield opposite valuation orders between the regular offer and the promotional offer of a product. Specifically, it demonstrate that, (a) if the valuation of a product is only elicited with WTP, consumers value the product less when it is offered with a price promotion than when it is not; (b) if the valuation of a product is only elicited with WTB, consumers value the product more when it is offered with a price promotion than when it is not; and (c) if the valuation of a product is first elicited with WTP and then elicited with WTB, consumers always value the product less when it is offered with a price promotion than when it is not. A value‐inference account is proposed for the above findings, according to which, consumers infer the value of a promoted product differently when the valuation is elicited only with WTP or only with WTB. Theoretically, this research extends prior literature on sales promotion, showing that the valuation of a promotion is subject to the elicitation method. Practically, this research suggests how to help consumers manage their purchase intentions for promoted products.     

STATED WILLINGNESS TO PAY FOR PUBLIC GOODS:

Abstract— In the contingent valuation method for the valuation of public goods, survey respondents are asked to indicate the amount they are willing to pay (WTP) for the provision of a good. We contrast economic and psychological analyses of WTP and describe a study in which respondents indicated their WTP to prevent or to remedy threats to public health or to the environment, attributed either to human or to natural causes. WTP was significantly higher when the cause of a harm was human, though the effect was not large. The means of WTP for 16 issues were highly correlated with the means of other measures of attitude, including a simple rating of the importance of the threat. The responses are better described as expressions of attitudes than as indications of economic value, contrary to the assumptions of the contingent valuation method.     

The role of affect in the WTA/WTP disparity

Four studies demonstrated robust within‐ and between‐subject differences in willingness‐to‐pay (WTP) and willingness‐to‐accept (WTA) measures of the value of lottery tickets. Buyers and sellers attended to different numerical cues and interpreted the same numbers differently when setting these two kinds of monetary values. Affective influences appeared to guide the valuation process. Buyers with stronger positive feelings about owning a ticket were willing to pay more for a ticket; sellers with stronger negative feelings about no longer having a ticket required a greater minimum payment in exchange for their ticket. In addition, the WTA/WTP disparity tended to be greater for more affectively‐laden lottery tickets. The results suggest that WTA and WTP prices are constructed using salient numerical cues and affective feelings. Copyright © 2003 John Wiley & Sons, Ltd.     

Protecting Against Low‐Probability Disasters: The Role of Worry

We carry out a large monetary stakes insurance experiment with very small probabilities of losses and ambiguous as well as exact probabilities. Many individuals do not want to pay anything for insurance whether the probabilities are given exactly or are ambiguous. Many others, however, are willing to pay surprisingly large amounts. With ambiguity, the percentage of those paying nothing is smaller and the willingness to pay (WTP) of the other individuals larger than with exact probabilities. Comparing elasticities with ambiguity, we find that worry is much more important than subjective probability in determining WTP for insurance. Furthermore, when the ambiguous loss probability is increased by a factor of 1000, it has almost no effect on WTP. Copyright © 2011 John Wiley & Sons, Ltd.     

Uninformative Anchors Have Persistent Effects on Valuation Judgments

Anchoring effects influence a wide range of numeric judgments, including valuation judgments, such as willingness‐to‐pay (WTP). However, prior research has not established whether anchoring only temporarily distorts responses or exerts persistent influence on preferences. This article presents three incentive compatible experiments examining the long‐term effects of random anchoring on WTP. Study 1 evaluated the persistence of anchoring effects over long durations, and showed that the strength of the effect decayed but did not disappear completely even 8 weeks later. In Study 2, a random anchor significantly influenced WTP after one week, regardless of whether WTP was also elicited immediately following the anchoring procedure, showing that consistency motivations do not account for persistence of anchoring effects. Study 3 showed relatively low anchors resulted in more stable valuations, compared with participants who reported WTP with no anchoring procedure. Together with the pattern of decay over time in Study 1, this suggests that anchoring facilitates the “imprinting” of valuation judgments for later retrieval. These studies show that anchoring effects can lead to lasting changes in valuation judgments, providing the first demonstration of long‐term persistence of constructed preferences as a result of an uninformative and arbitrary manipulation.     

Why Maximize Expected Choice-Worthiness?1

This paper argues in favor of a particular account of decision-making under normative uncertainty: that, when it is possible to do so, one should maximize expected choice-worthiness. Though this position has been often suggested in the literature and is often taken to be the ‘default’ view, it has so far received little in the way of positive argument in its favor. After dealing with some preliminaries and giving the basic motivation for taking normative uncertainty into account in our decision-making, we consider and provide new arguments against two rival accounts that have been offered—the accounts that we call ‘My Favorite Theory’ and ‘My Favorite Option’. We then give a novel argument for comparativism—the view that, under normative uncertainty, one should take into account both probabilities of different theories and magnitudes of choice-worthiness. Finally, we further argue in favor of maximizing expected choice-worthiness and consider and respond to five objections.     

Causal judgment from contingency information: Relation between subjective reports and individual tendencies in judgment

In two experiments, participants made causal judgments from contingency information for problems with different objective contingencies. After the judgment task, the participants reported how their judgments had changed following each type of contingency information. Some reported idiosyncratic tendencies--in other words, tendencies contrary to those expected under associative-learning and normative rule induction models of contingency judgment. These idiosyncratic reports tended to be better predictors of the judgments of those who made them than did the models. The results are consistent with the view that causal judgment from contingency information is made, at least in part, by deliberative use of acquired and sometimes idiosyncratic notions of evidential value, the outcomes of which tend, in aggregate, to be highly correlated with the outcomes of normative procedures.     

Sharing Values

In this paper, we consider one of the ways in which shared valuing is normatively significant. More specifically, we analyze the processes that can reliably provide normative grounding for the standing to rebuke others for their failures to treat something as valuable. Yet problems with grounding this normative standing quickly arise, as it is not immediately clear why shared valuing binds group members together in ways that can sustain the collective pursuit of shared ends. Responding to this difficulty is no easy task, since doing so requires demonstrating that the standing to call on one's fellow participants because of shared forms of valuing is not merely a side effect of members authority to call on their fellow participants to do their fair share in a collective endeavor. This is, to the best of our knowledge, a problem that the sparse literature on shared valuing has yet to consider. We argue that the best way to address this difficulty is to consider the real‐world complexity of how forms of valuing come to be shared within well‐structured collectives and how members internalize the evaluative tendencies that sustain shared valuing. To accomplish those ends, we examine two different ways that shared valuing is cultivated within well‐structured groups and the corresponding ways that members internalize forms of valuing; specifically, we examine differences between forms of valuing that are passed downward from the top of a group, as they are in the U.S. Military, and forms of valuing that bubble‐up through local patterns of interaction, as they do among the Zapatistas of Chiapas.     

Ownership Status and the Representation of Assets of Uncertain Value: The Balloon Endowment Risk Task (BERT)

Owners tend to overvalue possessions relative to non‐owners: a phenomenon known as the endowment effect. In three experiments, using markets for goods of uncertain value, we investigated whether this can be partly attributed to misperceiving an asset's profitability or to uncertainty about a good's utility. To test our hypotheses, we devised the Balloon Endowment Risk Task, in which participants can sell or buy their right to participate in the Balloon Analogue Risk Task. Once purchased/retained, a virtual balloon is pumped to accrue money, which is lost if the balloon bursts. Participants first learn about the risky asset (balloon) by observing others playing the Balloon Analogue Risk Task before they enter the market. In Experiment 1, we replicated the endowment effect; yet, owners and non‐owners predicted pumping the same number of times and subsequently did so when given that opportunity. In Experiments 2 and 3, the level of uncertainty about the balloon's profitability was manipulated by modifying the number of bursts that participants viewed in the initial learning stage. When more diagnostic information was provided, making the average burst point easier to estimate and reducing value uncertainty and increasing confidence in valuation, the endowment effect diminished although mean estimates of the average burst point did not differ between owners and non‐owners. Thus, endowment effects were partly attributable to value uncertainty but could not be explained by owners and non‐owners having divergent perceptions of the asset's payoff distribution. Copyright © 2014 John Wiley & Sons, Ltd.     

Effects of Perceived Fairness on Willingness to Pay

An experiment tested the effects of fairness on willingness to pay (WTP) for public goods. Treatments varied the amount requested (high vs. low), the fairness of the requested contribution (high vs. low), and the beneficiary (self vs. other) or cause of the needed change (internal vs. external). Irrespective of fairness type (beneficiary or cause), under conditions of high fairness, the public good was judged to be more valuable and the requested contribution more justified. The judged value of the public good and the perceived fairness of the requested contribution each made a significant contribution to the prediction of WTP. The requested amount influenced WTP by acting as an initial anchor. The implications of these findings for contingent valuation are discussed.     

“Test-Tube Baby” procedures: Stress and judgements under uncertainty

Patients participating in an in vim fertilisation with embryo transfer (IVF and ET) programme face uncertainty at each stage of the procedure. Research on heuristics and on stress lead to predictions about behaviour in situations of uncertainty. It was predicted that IVF and ET participants would overestimate the likelihood of success, due to publicity the process has received, and would underestimate the likelihood of an earlier, less publicised. stage in the procedure. Both predictions were confirmed in a total of 70 participants (26 women at out-patient clines, 23 of their partners and 21 surgical in-patients). All the men and all but one woman overestimated the likelihood of becoming pregnant and having a baby. and most of the surgical patients underestimated the likelihood of egg recovery. Estimates were not related to patients' confidence about their information, confirming previous evidence about confidence in inaccurate judgements based on heuristics. Data on patients' distress as indicated by mood rating show high anxiety at points of uncertainty and Pailure, as found in other studies of stress. While the couples shared their inaccurate judgements. they did not necessarily share their distress. The results are discussed in terms of patients' decision making. coping strategies and the implications for doctor-patient communication.     

Heightened interpersonal security diminishes the monetary value of possessions

People may value their possessions, in part, because ownership of goods promotes feelings of security. If so, increasing their sense of security should reduce the value they place on possessions. In two studies we tested this prediction. In Study 1, participants who were assigned randomly to write about an instance of receiving social support placed less monetary value on a blanket they owned relative to participants who were assigned randomly to write about a pleasant restaurant experience. In Study 2, participants who were unobtrusively primed with security-related words placed less monetary value on a pen they just received relative to participants who were primed with positive or neutral words. Results suggest that enhancing interpersonal security reduces valuing possessions.     

Within-subject consistency and between-subject variability in Bayesian reasoning strategies

It is well known that people tend to perform poorly when asked to determine a posterior probability on the basis of a base rate, true positive rate, and false positive rate. The present experiments assessed the extent to which individual participants nevertheless adopt consistent strategies in these Bayesian reasoning problems, and investigated the nature of these strategies. In two experiments, one laboratory-based and one internet-based, each participant completed 36 problems with factorially manipulated probabilities. Many participants applied consistent strategies involving use of only one of the three probabilities provided in the problem, or additive combination of two of the probabilities. There was, however, substantial variability across participants in which probabilities were taken into account. In the laboratory experiment, participants’ eye movements were tracked as they read the problems. There was evidence of a relationship between information use and attention to a source of information. Participants’ self-assessments of their performance, however, revealed little confidence that the strategies they applied were actually correct. These results suggest that the hypothesis of base rate neglect actually underestimates people’s difficulty with Bayesian reasoning, but also suggest that participants are aware of their ignorance.     

Quantifying the Value of Emotions Using a Willingness to Pay Approach

People generally seek out positive moods and avoid negative moods; however, it is unclear which motivation is more pronounced. Two studies addressed this issue by developing a value-based ranking of emotions based on the willingness to pay (WTP) approach. The approach utilizes money’s cardinal properties and assumes opportunity costs as with everyday purchases. In Study 1 British participants indicated they would be willing to pay more to experience positive than to avoid negative emotions. In Study 2 this positivity bias was replicated with another sample of British participants. However, Hong Kong Chinese participants did not show such a preference, and were willing to pay significantly less to experience positive emotions but more to avoid negative emotions when compared with British participants. Experiencing Love was given the highest WTP judgment in all samples. Thus, some emotions are universally valued, whereas preferences for others differ across cultural groups, perhaps shaped by norms. Implications concerning valuations of psychological states for policy purposes are discussed.     

Singular Clues to Causality and Their Use in Human Causal Judgment

It is argued that causal understanding originates in experiences of acting on objects. Such experiences have consistent features that can be used as clues to causal identification and judgment. These are singular clues, meaning that they can be detected in single instances. A catalog of 14 singular clues is proposed. The clues function as heuristics for generating causal judgments under uncertainty and are a pervasive source of bias in causal judgment. More sophisticated clues such as mechanism clues and repeated interventions are derived from the 14. Research on the use of empirical information and conditional probabilities to identify causes has used scenarios in which several of the clues are present, and the use of empirical association information for causal judgment depends on the presence of singular clues. It is the singular clues and their origin that are basic to causal understanding, not multiple instance clues such as empirical association, contingency, and conditional probabilities.     

Extreme malleability of preferences: Absolute preference sign changes under uncertainty

Malleability of preferences is a central tenet of behavioral decision theory. How malleable preferences really are, however, is a topic of debate. Do preference reversals imply preference construction? We argue that to claim preferences are construed, a demonstration of more extreme preference malleability than simple preference reversals is required: absolute preference sign changes within participants. If respondents value a prospect positively in 1 condition but negatively in a different condition, preferences cannot be considered stable. Such absolute preference sign changes are possible under uncertainty. In 2 incentive‐compatible experiments, we found participants were willing to pay to take part in a gamble and also demanded to be compensated to take part in a subsequent gamble with identical outcomes and probabilities. Such absolute preference sign changes within participants led to simultaneous risk aversion and risk seeking for the same risky prospect, suggesting that, at least in the domain of risky decisions, consumers' preferences are indeed malleable and construed.     

Uncertainty forecasts improve weather-related decisions and attenuate the effects of forecast error

Although uncertainty is inherent in weather forecasts, explicit numeric uncertainty estimates are rarely included in public forecasts for fear that they will be misunderstood. Of particular concern are situations in which precautionary action is required at low probabilities, often the case with severe events. At present, a categorical weather warning system is used. The work reported here tested the relative benefits of several forecast formats, comparing decisions made with and without uncertainty forecasts. In three experiments, participants assumed the role of a manager of a road maintenance company in charge of deciding whether to pay to salt the roads and avoid a potential penalty associated with icy conditions. Participants used overnight low temperature forecasts accompanied in some conditions by uncertainty estimates and in others by decision advice comparable to categorical warnings. Results suggested that uncertainty information improved decision quality overall and increased trust in the forecast. Participants with uncertainty forecasts took appropriate precautionary action and withheld unnecessary action more often than did participants using deterministic forecasts. When error in the forecast increased, participants with conventional forecasts were reluctant to act. However, this effect was attenuated by uncertainty forecasts. Providing categorical decision advice alone did not improve decisions. However, combining decision advice with uncertainty estimates resulted in the best performance overall. The results reported here have important implications for the development of forecast formats to increase compliance with severe weather warnings as well as other domains in which one must act in the face of uncertainty.     

Valuing the invaluable: Do emotional experiences during fertility treatments affect the willingness to pay for them?

Introduction

This paper extends the accepted economic method of valuation by taking psychological factors into consideration.

Buying/Selling Price Preference Reversals: Preference for Environmental Changes in Buying versus Selling Modes

Many studies have shown that the most people are willing to pay to obtain an object often is significantly less than the least they will accept to relinquish the object (i.e., selling prices tend to be higher than buying prices). Most tests of the buying/selling price discrepancy have elicited values either for everyday market items (e.g., mugs, candy bars) or for environmental changes (e.g., a decrease in air quality, a landfill clean-up). The literature indicates a possible interaction between buying/selling prices and commodity type; buying/selling price differences seem greater for environmental improvements than for market items. In other words, people show more relative preference for environmental improvements in selling modes than they do in buying modes. A significant difference in preference due to elicitation mode is commonly termed a "preference reversal." The four experiments presented here establish this new preference reversal and examine the reasons for it. The results from these studies provide information about the nature of preference reversals, the valuation process as a whole, and the unique problem of valuing complex and risky items such as environmental changes.