An example of endowment effect

Question

Suppose a Decision Maker (DM) has willingness to pay (WTP) of 100, and her actual elicited willingness to accept (WTA) is 110, can this DM be a standard rational agent? Why or why not?

My thinking is that if the DM is a standard rational agent, then her WTA should also be 100. Is this correct?

Answer 1

Your reasoning is not entirely rigorous, Even for a rational agent there can be a small gap between WTA and WTP due to the wealth effect. However, empirically this effect accounts for a very small fraction of the WTA/WTP gap, which is why other explanations are generally preferred.