A fundamental tenet in neoclassical theory is the basic independence assumption: an individual's preferences are assumed to be measured over levels, not changes. Although most theoretical and applied economic models invoke this assumption, a wealth of data from laboratory experiments refutes this premise, as systemic empirical disparities have been observed between willingness to pay (WTP) and willingness to accept (WTA) for the same good (e.g., Kahneman, Knetsch, and Thaler 1990), with WTA often observed to be many times larger than WTA. In an influential line of work, Hanemann (1991) argues that the large WTA/ WTP disparities that have been observed in the literature can be reconciled with static neoclassical theory via income and substitution effects; I but the empirical evidence to date has not conformed well to Hanemann's (1991) or any other neoclassical-based model. (2) If the observed value disparity is inconsistent with neoclassical explanations and is found to be a fundamental component of individual's preferences, as per reference-dependent theory (Kahneman and Tversky 1979; Tversky and Kahneman 1991), then a reevaluation of a good deal of economic analysis is necessary.
In this article, we provide a different explanation for the WTA/WTP disparity--a dynamic theory based on the presence of commitment costs and possibly asymmetric beliefs about market opportunities. When the value of a good is uncertain, WTP and WTA will logically reflect compensation for the possibility of learning that the good has a different value than believed at the time of purchase or sale and the cost associated with reversing the purchase or sale decision. In its simplest form, our model predicts that with objective (symmetric) beliefs about market opportunities (and with perfect substitutability and no income effects), there should be no value disparity. Intuitively, the objective cost of delaying the purchase (or alternatively reversing the purchase) for prospective buyers is isomorphic to the objective cost of reversing (or delaying) the sale for prospective sellers. This symmetry necessarily leads to WTA = WTP, consistent with the neoclassical paradigm.
Importantly, however, it is an agent's perception of the delay and reversal costs that motivates behavior. If agents behave in a manner consistent with the developing literature on cognitive dissonance and/or limited memory, it is quite plausible for individuals to display an asymmetric perception of the relative costs of selling later, depending upon whether they are placed in the role of a buyer or seller.3 This type of asymmetry alone can yield the systematic value divergences observed in the literature; indeed, we show that even with only slight asymmetries in beliefs of perceived costs, our theory can generate considerable value divergences because the actual divergence will depend upon the interaction of this asymmetry with the degree of value uncertainty, time preference, and lost value of consumption.
We explore the predictive power of our theory by examining WTA and WTP statements of value from consumers in a competitive marketplace--the sportscard market. Although we do not consider the sportscard marketplace particularly worthy of study in its own right, it is useful for our purposes for several reasons. First, it is a natural setting for an examination of preference structures because it provides a rich pool of subjects making decisions in a familiar environment, with uncertainty and future learning about the values of traded goods. Second, we can identify factors that arise endogenously, such as market experience, and impose the remaining controls necessary to implement a clean experiment to explore whether such factors attenuate the value disparity through the channels predicted by our theory.
Our data are striking in that agents display an asymmetric perception of the relative costs of selling later, depending upon whether they are placed in the role of a buyer or seller. …