A Meta-analysis of Hypothetical Bias in Stated Preference Valuation
10.1007/s10640-004-3332-z Cite this article as: Murphy, J.J., Allen, P.G., Stevens, T.H. et al. Environ Resource Econ (2005) 30: 313. doi:10.1007/s10640-004-3332-z Abstract
Individuals are widely believed to overstate their economic valuation of a good by a factor of two or three. This paper reports the results of a meta-analysis of hypothetical bias in 28 stated preference valuation studies that report monetary willingness-to-pay and used the same mechanism for eliciting both hypothetical and actual values. The papers generated 83 observations with a median ratio of hypothetical to actual value of only 1.35, and the distribution has severe positive skewness. We find that a choice-based elicitation mechanism is important in reducing bias. We provide some evidence that the use of student subjects may be a source of bias, but since this variable is highly correlated with group experimental settings, firm conclusions cannot be drawn. There is some weak evidence that bias increases when public goods are being valued, and that some calibration methods may be effective at reducing bias. However, results are quite sensitive to model specification, which will remain a problem until a comprehensive theory of hypothetical bias is developed.
Keywords contingent valuation experiments hypothetical bias meta-analysis stated preference
JEL classifications: C9, H41, Q26, Q28
References Bishop, R. C., Heberlein, T. A. 1979 Measuring Values of Extramarket Goods: Are Indirect Measures Biased? American Journal of Agricultural Economics 61 926 930 Google Scholar Bishop, R.C., Heberlein, T.A. 1986 Does Contingent Valuation Work? Cummings, R. Brookshire, D. Schulze, W. eds. Valuing Environmental Goods: A State of the Art Assessment of the Contingent Valuation Method Rowman and Allenheld Totowa, NJ Google Scholar Bohm, P. 1972 Estimating the Demand for Public Goods: An Experiment European Economic Review 3 111 130 Google Scholar Brookshire, D.S., Coursey, D.L. 1987 Measuring the Value of a Public Good: An Empirical Comparison of Elicitation Procedures The American Economic Review 77 554 566 Google Scholar Brown, T. 1984 The Concept of Value in Resource Allocation Land Economics 60 231 246 Google Scholar Carson, R.T., Flores, N.E., Martin, K.M., Wright, J.L. 1996 Contingent Valuation and Revealed Preference Methodologies: Comparing the Estimates for Quasi-Public Goods Land Economics 72 80 99 Google Scholar Champ, P.A., Bishop, R.C., Brown, T.C., McCollum, D.W. 1997 Using Donation Mechanisms to Value Nonuse Benefits from Public Goods Journal of Environmental Economics and Management 33 151 162 Google Scholar Cummings, R.G., Harrison, G.W., Rutström, E.E. 1995 Homegrown Values and Hypothetical Surveys: Is the Dichotomous Choice Approach Incentive-Compatible? American Economic Review 85 260 266 Google Scholar Cummings, R.G., Taylor, L.O. 1999 Unbiased Value Estimates for Environmental Goods: A Cheap Talk Design for the Contingent Valuation Method The American Economic Review 89 649 665 CrossRef Google Scholar Dickie, M., Fisher, A., Gerking, S. 1987 Market Transactions and Hypothetical Demand Data: A Comparative Study Journal of the American Statistical Association 82 69 75 Google Scholar Foster, V., Bateman, I.J., Harley, D. 1997 Real and Hypothetical Willingness to Pay for Environmental Preservation: A Non-Experimental Comparison Journal of Agricultural Economics 48 123 138 CrossRef Google Scholar Fox, J.A., Shogren, J.F., Hayes, D.J., Kliebenstein, J.B. 1998 CVM-X: Calibrating Contingent Values with Experimental Auction Markets American Journal of Agricultural Economics 80 455 465 Google Scholar Hanemann, W.M. 1984 Welfare Evaluations in Contingent Valuation Experiments with Discrete Responses American Journal of Agricultural Economics 66 332 341 Google Scholar
Harrison G.W., Rutstroüm E.E., (forthcoming). Experimental Evidence on the Existence of Hypothetical Bias in Value Elicitation Methods. In: Smith V.L., ed, Handbook of Results in Experimental Economics. New York, Elsevier Science
Heberlein, T.A., Bishop, R. 1986 Assessing the Validity of Contingent Valuations: Three Field Experiments Science of the Total Environment 56 434 479 Google Scholar Irwin, J.R., Slovic, P., Lickenstein, S., McClelland, G. 1993 Preference Reversals and the Measurement of Environmental Values Journal of Risk and Uncertainty 6 5 18 Google Scholar Johannesson, M. 1997 Some Further Experimental Results on Hypothetical versus Real Willingness to Pay Applied Economics Letters 4 535 536 Google Scholar List, J.A. 2001 Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards American Economic Review 91 1498 1507 CrossRef Google Scholar List, J.A. 2003 Using Random nth Price Auctions to Value Non-Market Goods and Services Journal of Regulatory Economics 23 193 205 Google Scholar List, J.A., Gallet, C. 2001 What Experimental Protocol Influence Disparities Between Actual and Hypothetical Stated Values? Environmental and Resource Economics 20 241 254 Google Scholar List, J.A., Shogren, J.F. 1998 Calibration of the Difference between Actual and Hypothetical Valuations in a Field Experiment Journal of Economic Behavior and Organization 37 193 205 Google Scholar Loomis, J., Brown, T., Lucero, B., Peterson, G. 1996 Improving Validity Experiments of Contingent Valuation Methods: Results of Efforts to Reduce the Disparity of Hypothetical and Actual Willingness to Pay. Land Economics 72 4450 4461 Google Scholar McKenzie, J. 1993 A Comparison of Contingent Preference Models American Journal of Agricultural Economics 75 593 603 Google Scholar Neill, H.R., Cummings, R.G., Ganderton, P.T., Harrison, G.W., McGuckin, T. 1994 Hypothetical Surveys and Real Economic Commitments Land Economics 70 145 154 Google Scholar Poe, G.L., Clark, J.E., Rondeau, D., Schulze, W.D. 2002 Provision Point Mechanisms and Field Validity Tests of Contingent Valuation Environmental and Resource Economics 23 105 131 Google Scholar Sinden, J.A. 1988 Empirical Tests of Hypothetical Biases in Consumers’ Surplus Surveys Australian Journal of Agricultural Economics 32 98 112 Google Scholar Smith, V.K., Mansfield, C. 1998 Buying Time: Real and Hypothetical Offers Journal of Environmental Economics and Management 36 209 224 Google Scholar