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According to the constructed preference view, consumer willingness to pay is a context-sensitive construct; that is, a consumer's WTP for a product depends on the concrete decision context. For example, consumers tend to be willing to pay more for a soft drink in a luxury hotel resort in comparison to a beach bar or a local retail store.
The Becker–DeGroot–Marschak method (BDM), named after Gordon M. Becker, Morris H. DeGroot and Jacob Marschak for the 1964 Behavioral Science paper, "Measuring Utility by a Single-Response Sequential Method" is an incentive-compatible procedure used in experimental economics to measure willingness to pay (WTP).
For example, the willingness to pay to stop the ending of one's own life can only be as high as one's wealth, while the willingness to accept compensation to accept the loss of one's life would be an extremely high number (or maybe infinite, meaning that there would be no finite acceptable payment amount).
On conducting the benefit-cost analysis, the team measured each dollar value of an environmental benefit by estimating a how many dollars a person is willing to pay in order to decrease or eliminate a current threat to their health, otherwise known as their "willingness-to-pay" (WTP). The WTP of the U.S. population was estimated and summed for ...
Other examples of the endowment effect include work by Ziv Carmon and Dan Ariely, [9] who found that participants' hypothetical selling price (willingness to accept or WTA) for NCAA final four tournament tickets were 14 times higher than their hypothetical buying price (willingness to pay or WTP).
Contingent valuation surveys were first proposed in theory by S.V. Ciriacy-Wantrup (1947) as a method for eliciting market valuation of a non-market good.The first practical application of the technique was in 1963 when Robert K. Davis used surveys to estimate the value hunters and tourists placed on a particular wilderness area.
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For the 80th acre, her marginal willingness to pay has decreased down to zero. Figure 2: Tom's marginal willingness to pay. Figure 2 shows Tom's marginal willingness to pay for a public park. Unlike Sarah, for the first acre of park he is willing to pay $40, and for the 40th acre of park he has a marginal willingness to pay of $20.