Handbook on Experimental Economics and the Environment
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Handbook on Experimental Economics and the Environment

Edited by John A. List and Michael K. Price

Laboratory and field experiments have grown significantly in prominence over the past decade. The experimental method provides randomization in key variables therefore permitting a deeper understanding of important economic phenomena. This path-breaking volume provides a valuable collection of experimental work within the area of environmental and resource economics and showcases how laboratory and field experiments can be used for both positive and normative purposes.
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Chapter 5: Values of gains and losses: reference states and choice of measure

Jack L. Knetsch


The extent to which people demand more to accept a loss than they are willing to give up to obtain an otherwise commensurate gain is a subject of growing interest – though thus far less so among those interested in environmental valuations, damage assessments, and environmental policy. Pervasive wide disparities between valuations of gains and losses have been demonstrated in survey studies, in controlled laboratory and field experiments, and in everyday decisions of people in non-experimental settings (reviewed in, for example, Rabin, 1998; and with particular attention to environmental changes, in Horowitz and McConnell, 2002). Attention has also been given to the likely limits to such differences and to alternative standard-theory-consistent explanations for their occurrence. It is widely agreed, for example, that everyday transactions of tradable goods held for that purpose are unlikely to induce valuation disparities, even though the same individuals participating in such trades may well demand far more to give up an environmental amenity, for example, than they are willing to pay to acquire it. Further, at least some of the reported valuation differences have been ascribed to inexperience of traders (for example, List, 2003) and to the experimental procedures used in the demonstrations (for example, Plott and Zeiler, 2005, 2007).

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