Chapter 5 Econ Behav

maximum price a customer is willing to pay for a product or service.

minimum monetary amount that а person is willing to accept to sell a good or service, or to bear a negative externality, such as pollution.

WTP=WTA

WTA>WTP people value something more when they have it (are endowed with it) than when they don’t have it
-creates reference-dependent utility, meaning utilityor some level of consumption is not an absolute, but is instead a function of our “reference point”

the negative effect on utility from
a loss is greater than the positive effect on utility
of a similar gain

Shortened: The bad of losses outweighs the good of gains

Both end the walk with five apples, so they should be equally happy using standard utility theory. They are
equally happy.

If reference points are their start-of-
walk endowments (10 for Pat, 0 for Sam), at the
end of the walk Pat has v(-5) and Sam has v(5)
v(x) = x/2 for gains (x > 0)
v(x) = 2x for losses (x < 0)
• This means Pat has v = 2*-5 = -10 and Sam has v =
5/2 = 2.5. Sam is happier than Pat.

people systematically
underestimate the amount of adjustment
needed to make accurate judgments.
For example, if you first see a T-shirt that costs $1,200 – then see a second one that costs $100 – you're prone to see the second shirt as cheap

Preferences/decisions don’t change due to changes in the method used to elicit them