The Control Premium: Willingness-to-Pay for Control

Date
2011
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Haverford College. Department of Economics
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Thesis
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Award
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eng
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Haverford users only
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Abstract
While the desire for control is a common area of focus for many academic disciplines, Economics has largely ignored individuals’ desires for control. Because of the ubiquity of control as a factor in daily decisions, it is imperative that individuals demand for control be studied. We argue that individuals have a substantial desire for control that generates a demonstrable impact on preferences. Subjects are observed preferring assets they believe to have lower expected value when the assets provide the subjects control over their experimental payment. By choosing assets with lower expected value to obtain control, subjects pay a “Control Premium.” The existence of significant Control Premiums have immediate impact on various domains including: private investment and retirement savings, management and delegation, and health care delivery. Additionally, significant Control Premiums question prior studies on overconfidence, as the measures of overconfidence often could conflate true overconfidence with a Control Premium.
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