The selectivity effect of past experience on purchasing decisions: Implications for the WTA–WTP disparity

When consumers are not fully cognizant of the value of a good, they use their experience to estimate its value. Their past experience is selective if it only contains transactions that were carried out but not potential transactions that were not implemented. Failing to account for this selectivity may result in biased estimates of the post-purchase value. This paper presents a bounded rationality model of this process and investigates consequences vis-à-vis the abnormal disparity between willingness to pay (WTP) and willingness to accept (WTA). Implications for experimental findings concerning the dependence of the WTA/WTP ratio on a good’s characteristics and the negative correlation between market experience and the endowment effect are discussed. 2007 Elsevier B.V. All rights reserved. JEL classification: D11; D82