Hypothetical Bias Reconsidered: Payment and Provision Uncertainties in a Threshold Provision Mechanism
We extend research on the consequentiality of stated preference choices to a threshold provision mechanism for public goods. We develop a simple theoretical model of option price to analyze how option price varies with payment and provision uncertainty. We explore whether threshold provision contributions are similarly influenced by payment and provision uncertainty using an induced value contribution experiment. Results suggest that: (1) the probability of payment has a negative effect on contributions; (2) the probability of provision has a positive effect on contributions. We offer subjective beliefs regarding payment and provision as a plausible systematic explanation for hypothetical bias.
KeywordsHypothetical bias Induced-values Payment uncertainty Provision uncertainty Stated preferences Threshold public goods game
JEL ClassificationC91 H41 Q51
This paper was originally entitled “A New Explanation for Hypothetical Bias: Subjective Beliefs of Hypothetical Aspects in Payment and Provision.” The authors thank Trudy Cameron, Katherine Carson, Richard Carson, Eric Duquette, George Hutchinson, Toshiro Kikuchi, Koichi Kuriyama, Eirik Romstad, Masayuki Sato, Riccardo Scarpa, Jason Shogren, Koichi Suga, Kenji Takeuchi, and participants at the EAERE 18th annual conference, NAREA workshop on experimental economics, and a special session on hypothetical bias at 4th WCERE for insightful comments and suggestions on an earlier draft of the paper. The experiment was supported by the Grant-in-Aid for Scientific Research (B) (21310030). Yohei Mitani was partially supported by the Japan Society for the Promotion of Science. The views expressed in the paper are those of the authors.
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