Jack L Knetsch

Simon Fraser University · Department of Economics

Many positive and negative changes are valued by people relative to a neutral reference state, which may, or often may not, be the status quo. Positive changes can then be either gains and the monetary value of the increase in welfare best assessed with the WTP measure, or reductions of losses, and like losses, the change in welfare more accurately...

This book presents the definitive exposition of ‘prospect theory’, a compelling alternative to the classical utility theory of choice. Building on the 1982 volume, Judgement Under Uncertainty, this book brings together seminal papers on prospect theory from economists, decision theorists, and psychologists, including the work of the late Amos Tvers...

Publications in leading journals are widely known to have a positive impact on economists’ judgments of the value of authors’ contributions and professional reputations. While conjectures that publications in lower-rated journals likely have a negative impact on such judgments are common, there have been virtually no direct tests of their validity....

The well-known behavioural finding that losses have a greater impact on people’s well-being than gains, has important implications for the study of individual and collective choices, as well as the ways in which analyses are carried out -- many more than have yet been seriously considered. It also has many for analysts’ use of such tools as price e...

Standard economic theory correctly prescribes willingnes-to-pay (WTP) to most accurately assess the welfare change of gains and WTA to measure the welfare change of losses, and, in recognition of reference dependence, reductions of losses. However, its additional assumption of near equivalence between the measures, used to justify the current pract...

The results of the vast array of willingness to accept compensation/ willingness to pay (WTA/WTP) disparity studies provide strong evidence that people value many losses and reductions of losses, more, and often much more, than otherwise commensurate gains or foregoing of gains. These findings also make it clear that people commonly value many chan...

Given the pervasive evidence that people typically value changes in terms of comparisons to a reference state, and that they commonly value losses and reductions of losses more than gains, current risk assessment and valuation practice is likely to lead to systematic bias and distorted guidance. Willingness to pay estimates of the value of reducing...

Mounting evidence continues to suggest that people value changes in terms of a neutral reference state and that those in the domain of losses are commonly valued far more than those in the gains. Consequently, both negative and positive changes in the domain of losses, including mitigation of losses such as restoring environmental quality and reduc...

Economic behaviour observed in experiments and in people's everyday dealings is often at variance with predictions and explanations based on standard theory. The findings of systematic patterns of such economic behaviour provide significant opportunities to extend the usefulness of economics. However, like the hesitation of participants in economic...

The available empirical evidence continues to suggest that people commonly value losses more, and often much more, than otherwise commensurate gains. Consequently, current practice of using the WTP measure for all changes is often likely to lead to misleading assessments of welfare changes. The reference dependence of preferences implies instead th...

Recent reports suggest that the “endowment effect” may be due to conditions under which it is observed and explained by incentives long recognized in standard theory. Evidence from new experiments, reported here, provides empirical support for the role of the economic environment on people's perceived reference state and consequently on their valua...

This paper provides an examination of the problem of heteroscedasticity as it relates to estimating park use, although the results can also be applied to a wide variety of flow problems involving traffic, people or commodities. The major issue is that estimates of flows obtained using ordinary least squares, OLS, often yield statistically significa...

Damages from, for example, an oil spill can be measured by how much people are willing to pay to avoid them, or by the minimum compensation they demand to accept them; and decisions to clean up can be justified by the willingness to pay to do it or by the compensation necessary to forgo it. Contrary to the usual official and unofficial conventions...

While offering many useful suggestions to improve economic analyses, the Guidelines take no account of widely reported behavioural economics research findings. Foregoing the opportunities to improve valuations and other analyses offered by this evidence is likely to lead to inappropriate assessments and consequent distortions of damage estimates, p...

Taking account of recent findings that, for example, people value losses more than otherwise commensurate gains, discount future losses at lower rates than future gains, and tend to make choices on the basis of mental accounts, could markedly improve the guidance offered by economic analyses of forest management options. Asymmetrical incentives and...

People's common propensity to value losses more than otherwise commensurate gains, gives rise to different values of positive and negative changes in entitlements depending on the measure used to assess them. A major implication of the differing valuations is a need to choose an appropriate measure for particular changes. The appropriate choice of...

In a comment on an article in Journal of Consumer Policy by Don Kenkel, the author questions the suggestion in the previous article that estimates of the value of a statistical life should regularly be based on the WTP (willingness to pay) approach. There is much evidence of large disparities between valuations using the WTP and the WTA (willingnes...

Behavioral decision theory draws on experimental research in cognitive psychology to provide a descriptively accurate model of human behavior. It shows that people systematically violate the normative assumptions of economic rationality by miscalculating probabilities and making choices based on one-economic criteria. Behavioral decision theory's a...

A predetermined schedule of sanctions and regulations that reflect both scientific knowledge of resources and the preference and judgments of resource users in the community may provide a useful guide for management decisions involving complex coastal resource systems. Such a schedule can be implemented by constructing scales reflecting public judg...

Available methods of valuing environmental changes are often limited in their applicability to current issues such as damage assessment and implementing regulatory controls, or may otherwise not provide reliable readings of community preferences. An alternative is to base decisions on predetermined fixed schedules of sanctions, restrictions, damage...

The difference between people's valuations of gains and losses has been widely observed in both single trial and repeated trial experiments, as well as in survey responses and in commonplace behavior. However, the results of some Vickrey auction experiments indicate that the disparity may decrease, or even disappear, over repeated trials. This pape...

This exciting volume marks the birth of a new field, one which attempts to study law with reference to an accurate understanding of human behavior. It reports new findings in cognitive psychology which show that people are frequently both unselfish and over-optimistic; that people have limited willpower and limited self-control; and that people are...

The pervasive finding that individuals value losses more than gains, suggests that actual gains from trade and numbers of market exchanges may well be much smaller than would be the case if people's buying and selling prices were equivalent, as normally assumed. The results of two sets of costless market simulations, using actual gain and loss valu...

Prescription dealing with redistribution questions are often influenced by the presumption that individuals behind a veil of ignorance will choose rules that lead to a greater equality of outcomes. However, such preferences may be fragile and dependent on particular circumstances. To the extent that initial distributions are seen to be deserved, fo...

Reports the results of two experimental tests of the extent to which the large disparity between people’s valuation of gains and losses, and related fairness determinations, are used in judging the acceptability of alternative negotiating or conflict resolution proposals. Participants acted as arbitrators and selected their preferred resolution of...

Increasing awareness of exposure to environmental risks has focused attention on measures that would give greater assurance that such risks are effectively managed and that the adverse consequences of risky activities are mitigated. Implementing such actions is made more difficult by the uncertainties of environmental changes, their often delayed i...

Recent empirical studies indicate that many standard economic assumptions used in policy analyses do not reflect people's preferences and choices as well as modifications based on behavioral findings. Differences in the areas of time preferences and the large disparity between valuations of gains and losses illustrate the issues and the distortions...

Recent findings of large differences between people's valuations of gains and losses imply that the common preference order axioms of completeness, transitivity, and dominance on which economic analyses and predictions of consumer behavior are largely based, may not be consistent with actual choices. This paper reports the results of an experimenta...

Contingent valuation of people's willingness to pay has rapidly become the method of choice to value all manner of environmental damages. The correct measure is, however, the sum people require to compensate them for such losses, an amount which will normally be far larger than their willingness to pay. And on present evidence, responses to conting...

Contingent valuation surveys in which respondents state their willingness to pay (WTP) for public goods are coming into use in cost-benefit analyses and in litigation over environmental losses. The validity of the method is brought into question by several experimental observations. An embedding effect is demonstrated, in which WTP for a good varie...

New evidence indicating that people commonly demand more to give up an entitlement than they would pay to acquire the same good suggests that reversible indifference curves may not accurately reflect consumer preference orderings. This paper presents the results of two direct experimental tests of such reversibilities. The tests used two commodity...

An important idea, which characterizes law in society, is a reluctance to move from the status quo. In general, one can argue that legal institutions and legal doctrine are not engaged in the redistribution of wealth from one party to another. This paper explores a possible explanation for that principle. The authors' research suggests that, across...

A wine-loving economist we know purchased some nice Bordeaux wines years ago at low prices. The wines have greatly appreciated in value, so that a bottle that cost only $10 when purchased would now fetch $200 at auction. This economist now drinks some of this wine occasionally, but would neither be willing to sell the wine at the auction price nor...

From 1968 to 1988, 47 children and adolescents, their ages ranged from a few days to 21 years, were treated for tumors of the ovary in the hospital for children and adolescents and the surgical department of the University of Erlangen-Nürnberg. In 33 cases ovarian cysts were found, 14 patients suffered from a neoplasm of the ovary. 8 of the neoplas...

Contrary to theoretical expectations, measures of willingness-to-accept greatly exceed measures of willingness-to-pay. This paper reports several experiments that demonstrate that this "endowment effect" persists even in market settings with opportunities to learn. Consumption objects (e.g., coffee mugs) are randomly given to half the subjects in a...

Like most economic analyses, environmental loss assessments and policy prescriptions are based on the assumption that, income effects aside, willingness-to-pay and compensation-demanded valuations will be equivalent. The accumulating evidence from controlled tests indicates, however, that the compensation measure is commonly far larger than the pay...

En la UE se ha estimado que los costes de la congesti�n representan el 2% de su PIB y que el coste de la poluci�n del aire y ruido supera el 0,6% del PIB, siendo alrededor del 90% de los mismos ocasionados por el transporte terrestre. Ante este hecho y el continuo aumento de la demanda del transporte privado frente al p�blico para los desplazamient...

Problems of market failure and preferences for a wider distribution of recreational opportunities than might be provided by private market exchanges, have led to a large measure of public provision of parks and other recreational facilities in countries throughout the world. This nonmarket nature of recreation allocation has prompted most of the at...

The financial crisis of 2008, which started with an initially well-defined epicenter focused on mortgage backed securities (MBS), has been cascading into a global economic recession, whose increasing severity and uncertain duration has led and is continuing to lead to massive losses and damage for billions of people. Heavy central bank intervention...

Community standards of fairness for the setting of prices and wages were elicited by telephone surveys. In customer or labor markets it isacceptable for a firm to raise prices (or cut wages) when profits arethreatened, and to maintain prices when costs diminish. It is unfair toexploit shifts in demand by raising prices or cutting wages. Several mar...

Recent studies have revealed a large and unexpected disparity between willingness-to-pay and compensation-demanded measures of economic loss. Further evidence of this difference is presented here, together with the results of a series of survey and real money exchange experiments which indicate that when advisors evaluate entitlements on behalf of...

The economic benefits of developing and improving small boat harbors has traditionally been estimated by use of what has come to be known as the small boat formula (SBF), a method which has many theoretical and practical defects. In this paper these limitations are detailed, and alternative approaches to the SBF are outlined and evaluated. These al...

A useful distinction is usually made between pecuniary and physical, or technological, externalities. However, in practice and contrary to common prescriptions, pecuniary impacts are often exaggerated and given more than their due, while real social costs of technological effects are systematically discounted. One reason for the difference in the t...

Damages or a loss in economic well-being can be measured by either the maximum sum people would pay to avoid the loss, or by the minimum compensation they would require to accept it. These alternative bases for evaluation have been assumed to yield fully equivalent measurements, and as a consequence no discrimination is usually made between them in...

Aside from possible income effects, measures of the maximum amounts people will pay to avoid a loss and the minimum compensation necessary for them to accept it are generally assumed to be equivalent. Unexpectedly wide variations between these sums, however, have been noted in survey responses to hypothetical options. This paper reports the results...

Extends the Krutilla-Fisher valuation technique for resource sites to cases where the resource in question is not unique, as assumed in previous studies, but has recognized substitutes. In this process, it is demonstrated that vertical and horizontal demand shifts (for the non-market services of the site or resource) are not independently attributa...

The analysis of recreational fisheries management is a relatively neglected area of research. In this paper we have attempted to advance that analysis by adapting certain theoretical considerations that have been used in (commercial) fisheries economics and in recreational economics. Specifically, we have considered the implications of the differen...

A procedure for measuring option value and other preservation values of water quality is developed and applied to a case study area in the South Platte River Basin, Colorado. Benefits from water-based recreation activities are focus of the study. The ...

While now becoming commonplace in countries in all stages of development, explicit rules for environmental impact assessments are usually neither easily managed nor effective in improving resource allocations. Incentives in most directives and study methods nearly insure that environmental information is isolated from other planning data and that l...

This study makes use of factors known to influence the expected worth of non-measurable values associated with amenities and wilderness recreation to provide guidance for choosing between preservation and development of a site. An area in British Columbia with commercially valuable timber potential, and unique and important aesthetic and wilderness...

This paper provides an empirical framework for testing a welfare change measure by considering the following problem: a public agency is faced with the decision of how to maximize public welfare from optimally locating a large-scale national recreational ...

The impact of tourism on local economies has long been a concern of individual communities and of governmental agencies interested in promoting this source of local income. The magnitudes are often large and, with fluctuations, continue to increase. The development of recreational opportunities and tourist facilities is often viewed as a means of r...

Cesario F. J. and Knetsch J. L. (1976) A recreation site demand and benefit estimation model, Reg. Studies 10, 97--104. A model useful for estimating both the numbers of visits per unit time attracted to recreation sites in a region and the primary social benefits associated with these sites is developed. The visitor component of the model predicts...

Recreation studies have in the past confused the terms demand and use. Demand refers to the schedule of quantities that the community will desire at all possible prices. Use or participation is the realization of both demand and supply considerations. Accordingly, a priori information in addition to the data must be supplied prior to the estimation...

Indirect methods are generally necessary to measure outdoor recreation benefits. A widely proposed technique involves estimating demand schedules using travel cost data as a proxy for prices. A major problem involved with this method as it has been applied is a serious conservative bias in the estimates, owing to the improper accounting of the cons...

Outdoor recreation economics is an area similar to numerous other study areas in the general field of eco nomics. Economists working in this area are concerned with the efficiency of the allocation of resources between outdoor recreation facilities and programs, on the one hand, and goods and services, generally, on the other—and, within the area o...

Recent reports suggest that the evidence of a disparity between people's valuations of gains and otherwise commensurate losses may be due to experimental procedures used to elicit such observations. Evidence from new experiments, reported here, indicates that the presence or absence of the valuation disparity may instead be due to impacts of proced...

Economic assessment of environmental values has attracted considerable attention in keeping with growing demands to take the importance of environmental amenities and resource productivity into account in public and private decisions. The call, particularly from economists, is usually for more such accountings and valuations. However, currently, as...

We develop a willingness to pay model for assessing the value of political demonstrations and apply this model.

Objectives The course is intended to provide an introduction and review of methods, findings and implications of work in the area of behavioural economics (or, economic psychology). Further, participants will gain a basic understanding of the purpose and experience with the logistics of behavioral economic experiments through classroom demonstratio...

Thesis (M.S.)--Michigan State University of Agriculture and Applied Science. Dept. of Agricultural Economics, 1956. Includes bibliographical references (leaves 87-88).