If I am given a thing, like a mug, I now have one more mug than I had before. My need for mugs has therefore decreased. If I am to sell the mug, I must examine how much I will need the mug after it is gone and place a price on that loss of utility. If I am buying a mug I must set a price on how much I need it after I have it and place a price on that increase of utility. If the experiment is not worded carefully then the thought process could go along the lines of...
I have 2 mugs, and often take a tea break with my mate Steve. To sell one of those mugs would make me lose out on this activity… $10. I don’t hugely need another mug unless it breaks, but it is handy to have a spare… $2.
In real life people will attribute more value to their stuff than other stuff as in general they would not have got the stuff if they did not value it higher than the cost of getting it. It is not a failiure of rationality to want something more than what you paid for it, and while it is a failiure of rationality to over value something just because you own it, it is not a failiure of rationality to ask a higher price first in case the person you are selling to is willing to pay more.
It would be difficult to adjust for these factors in designing an experiment.
This all depends on the valuation elicitation process, which is pretty clever and, assuming that the subjects are acting rationality, does in fact elicit true values—at least as implemented in the paper I linked. As the paper goes into, others unknowningly tweak this process a bit and change the incentive structure, then (surprise) they get WTP-WTA gaps.
If I am given a thing, like a mug, I now have one more mug than I had before. My need for mugs has therefore decreased. If I am to sell the mug, I must examine how much I will need the mug after it is gone and place a price on that loss of utility. If I am buying a mug I must set a price on how much I need it after I have it and place a price on that increase of utility. If the experiment is not worded carefully then the thought process could go along the lines of...
I have 2 mugs, and often take a tea break with my mate Steve. To sell one of those mugs would make me lose out on this activity… $10. I don’t hugely need another mug unless it breaks, but it is handy to have a spare… $2.
In real life people will attribute more value to their stuff than other stuff as in general they would not have got the stuff if they did not value it higher than the cost of getting it. It is not a failiure of rationality to want something more than what you paid for it, and while it is a failiure of rationality to over value something just because you own it, it is not a failiure of rationality to ask a higher price first in case the person you are selling to is willing to pay more.
It would be difficult to adjust for these factors in designing an experiment.
This all depends on the valuation elicitation process, which is pretty clever and, assuming that the subjects are acting rationality, does in fact elicit true values—at least as implemented in the paper I linked. As the paper goes into, others unknowningly tweak this process a bit and change the incentive structure, then (surprise) they get WTP-WTA gaps.