Mitigating Hypothetical Bias: Evidence on the Effects of Correctives from a Large Field Study
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The overestimation of willingness-to-pay (WTP) in hypothetical responses is a well-known finding in the literature. Various techniques have been proposed to remove or, at least, reduce this bias. Using about 30,000 responses on WTP for a variety of power mixes from a panel of 6500 German households and the fixed-effects estimator to control for unobserved heterogeneity, this article simultaneously explores the effects of two common ex-ante approaches—cheap talk and consequential script—and the ex-post certainty approach to calibrating hypothetical WTP responses. Based on a switching regression model that accounts for the potential endogeneity of respondent certainty, we find evidence for a lower WTP among those respondents who classify themselves as definitely certain about their answers. Although neither cheap talk nor the consequential-script corrective reduce WTP estimates, receiving either of these scripts increases the probability that respondents indicate definite certainty about their WTP bids.
KeywordsWillingness-to-pay Cheap talk Certainty approach
JEL ClassificationD12 Q21 Q41
We are grateful for invaluable comments and suggestions by Peter Grösche, Christoph M. Schmidt and participants of the World Congress of Environmental and Resource Economists, Istanbul, Turkey (2014), as well as two anonymous reviewers. This work has been partly supported by the Collaborative Research Center “Statistical Modeling of Nonlinear Dynamic Processes” (SFB 823) of the German Research Foundation (DFG), within the framework of Project A3, “Dynamic Technology Modeling”. We also gratefully acknowledge financial support by the German Federal Ministery of Education and Research (BMBF) under Grant 01LA1113A.
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