Many contingent valuation studies have found that respondents tend to report muc

Question

Many contingent valuation studies have found that respondents tend to report much higher values for questions that ask what compensation the respondent would be willing to accept (WTA) to give something up than for questions that ask for the willingness to pay (WTP ) for an incremental improvement he or she would receive. Why is this?

Irrationality, humans often tend to be irrational.

Loss aversion, humans tend to value losses more highly than comparable gains.

Immorality, human's moral judgments are questionable.

Dishonesty, humans tend to lie on surveys.

Irrationality, humans often tend to be irrational.

Loss aversion, humans tend to value losses more highly than comparable gains.

Immorality, human's moral judgments are questionable.

Dishonesty, humans tend to lie on surveys.

Explanation / Answer

The correct answer is B.

Explantion:
Human beings are averse to losses, due to what is referred to as by behavioral economists as psychological endowment effect. Human beings get emotionally attached to things they own. Therefore, the magniture of the sorrow of losing a thing is often greater than the magnitude of the happiness of getting another thing of the same economic value.

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