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Calculating WTP from utilities

Hi,

I was wondering if I understand the calculation of WTP correctly.
Hypothetical example;
I have 4 price levels: $3.00, $6.25, $9.50, and $12.75.
The utitilies of those levels are 0, -20.4, -32.4, and -42.9, respectively.

I then calculate the dollar value of a utility point by dividing the range of the price attribute by the range of the utilities, so 9.75 / 42.9 = $0.23.

I then have an attribute 'battery life' with several levels. The levels 4 hours and 8 hours have utilities of 7 and 17, respectively. I multiply the difference in utility between those two levels with the dollar value of a utility point (10 x $0.23 = $2.30) in order to conclude that respondents are willing to pay an additional $2.30 for the battery lasting 8 hours compared to the battery lasting 4 hours.

Is this correct?

(I know from previous questions on this forum that this is not an optimal way of calculating WTP, however I still want to know whether the example mentioned above is correct).

Thank you in advance for the help!
asked Jun 16 by Floor (310 points)

1 Answer

+1 vote
Yes, you have the mechanics of the calculation right.  

When I do calculate WTP this way, I usually do so at the respondent level and I report the median (because the mean can get inflated by outliers).
answered Jun 16 by Keith Chrzan Platinum Sawtooth Software, Inc. (77,750 points)
Thank you for your quick reply.

I am indeed calculating WTP at the individual level, and I will use the median instead of the mean. Thank you for the tip!
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