Becker-DeGroot-Marschak Contract Valuation Disconnect
Mean willingness-to-pay for the real policy was Rs. 68.4 (median Rs. 70) [21, 22]. Modifying the exit threshold increased expected payout value by Rs. 40-70 but only increased willingness-to-pay by Rs. 10.86 (p < 0.01); reducing per-mm shortfall payouts reduced expected value by Rs. 10-20 and reduced willingness-to-pay by Rs. 11.90 (p < 0.01) [16, 23, 24]. Introducing basis risk (distant station) halved valuation, reducing bids by Rs. 29.45 (p < 0.01) [24, 25].