More laboratory evidence on the disparity between willingness to pay and compensation demanded

Abstract Recent experimental work showing a disparity between willingness to pay for and compensation demanded to give up lottery tickets is contrary to economists' ideas about rationality. Presented here are the results of experiments in which subjects participate in second price auctions to indicate willingness to pay and compensation demanded for lottery tickets that have fixed odds of winning or losing money. When the auction institution used has truthful revelation of preferences as the dominant strategy, and that strategy is announced to subjects, the difference between the measures of value decreases significantly. The within subject comparison design provides a more discriminating measure of behavior than between subject comparison designs used previously.

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