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Willingness to Pay - Short Note on TIOLI and BDM

“How much are you willing to pay for this product?”

It is one of the most interesting and fundamental questions asked by researchers in economics. In a field setting, there are a few ways to elicit the answer to this; the two most popular ones being; ‘take it or leave it’ (TIOLI) and ‘Becker-DeGroot-Marschak’ (BDM). Right now, quite a few projects at CMF are using one of these two mechanisms or modified versions of the same, so I thought it’d be interesting for fellow CMF RAs to understand the core difference between TIOLI and BDM.

To put it simply, in TIOLI, the respondent is asked if he/she is willing to buy `XYZ’ for a randomly generated offer price. In BDM, on the other hand, the respondent is asked about his/her willingness to pay for `XYZ’ against a randomly generated offer price which is revealed later.

Let me digress with the help of an example, in TIOLI, say INR 200 is the randomly generated offer price for a respondent. The researcher would then ask that respondent if he/she is willing to buy `XYZ’ for INR 200 and if the answer is `yes’, that respondent’s willingness to pay is noted as INR 200 and the he/she can then buy the product at the said price of INR 200. Under BDM, a respondent is asked about his willingness to pay for ‘XYZ’. If he/she answers INR 200, the researcher looks at the randomly generated offer price for that respondent. If his/her willingness to pay is greater than the random offer price, the respondent gets the chance to buy the product at the randomly generated offer price.

Obviously, what I described above is just the basic difference between the two mechanisms. For further reading and application, you can read: 

“Eliciting and Utilizing Willingness to Pay: Evidence from Field Trials in Northern Ghana” (2012) – James Berry, Greg Fischer, Raymond Guiteras

“Testing Distributional Dependence in the Becker-DeGroot-Marschak Mechanism” (2011) – Michael Urbancic
 

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