The Disparity Between Willingness to Accept and Willingness to Pay Measures of Value

The results of an experiment are presented that show that, although individual opening bids in a Vickrey (1961, 1976) auction display a large disparity between willingness to accept (WTA) and willingness to pay (WTP) measures of value, consistent with the results of Knetsch and Sinden (1984), ending bids submitted after a series of learning trials are similar. Thus, the market-like learning experience of the Vickrey auction causes the disparity reported by Knetsch-Sinden to be considerably reduced. This suggests that, as individuals evaluate the consequences of their decisions over a series of iterative trial auctions, they more fully learn both their "true" preferences and that full demand revelation is their main strategy. Since much economic activity occurs in organized markets, this result implies that economic theory is correct in predicting that WTA and WTP will usually be close in a mature market setting. However, a big disparity may exist outside of markets or where inexperienced market decisions are made.