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Do people always pay less than they say? Testbed laboratory experiments with IV and HG values

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  • Nicolas Jacquemet

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Robert-Vincent Joule

    ()
    (LPS-AIX - Laboratoire de Psychologie Sociale - Université de Provence - Aix-Marseille I : EA849)

  • Stephane Luchini

    ()
    (GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille - Université de la Méditerranée - Aix-Marseille II - Université Paul Cézanne - Aix-Marseille III - École des Hautes Études en Sciences Sociales (EHESS) - CNRS : UMR6579)

  • Jason Shogren

    ()
    (University of Wyoming - Department of Economics and Finance, Umeå University - Department of Economics)

Abstract

Hypothetical bias is a long-standing issue in stated preference and contingent valuation studies – people generally overstate their preferences when they do not experience the real monetary consequences of their decision. This view, however, has been challenged by recent evidence based on the elicitation of induced values (IV) in the lab and homegrown (HG) demand function from different countries. This paper uses a two experiments design to assess the extent and relevance of hypothetical bias in demand elicitation exercises for both IV and HG values. For testbed purpose, we use a classic second-price auction to elicit preferences. Comparing the demand curve we elicit in both, hypothetical bias unambiguously (i) vanishes in an induced-value, private good context, and (ii) persists in homegrown values elicitation context. This suggests hypothetical bias in preference elicitation appears to be driven by “preference formation” rather than “preference elicitation”. In addition, companion treatments highlight two sources of the discrepancy observed in the HG setting: the hypothetical context leads bidders to underestimate the constraints imposed by their budget limitations, whereas the real context creates pressure leading them to bid “zero” to opt out from the elicitation mechanism. As a result, there is a need for a demand elicitation procedure that helps subjects take the valuation exercise sincerely, but without putting extra pressure on them.

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00443668.

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Date of creation: 02 Jan 2010
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Handle: RePEc:hal:cesptp:halshs-00443668

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Keywords: Auctions; Demand revelation; Experimental valuation; Hypothetical bias;

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References

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  1. Felix Schlaepfer, 2007. "Contingent valuation: a new perspective," SOI - Working Papers 0715, Socioeconomic Institute - University of Zurich.
  2. Nicolas Jacquemet & Stephane Luchini & Robert-Vincent Joule & Jason Shogren, 2008. "Earned Wealth, Engaged Bidders? Evidence from a second price auction," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00277283, HAL.
  3. Mariah D. Ehmke & Jayson L. Lusk & John A. List, 2008. "Is Hypothetical Bias a Universal Phenomenon? A Multinational Investigation," Land Economics, University of Wisconsin Press, vol. 84(3), pages 489-500.
  4. List, John A. & Shogren, Jason F., 1998. "Calibration of the difference between actual and hypothetical valuations in a field experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 37(2), pages 193-205, October.
  5. Collins, Jill P. & Vossler, Christian A., 2009. "Incentive compatibility tests of choice experiment value elicitation questions," Journal of Environmental Economics and Management, Elsevier, vol. 58(2), pages 226-235, September.
  6. Laura O. Taylor & Ronald G. Cummings, 1999. "Unbiased Value Estimates for Environmental Goods: A Cheap Talk Design for the Contingent Valuation Method," American Economic Review, American Economic Association, vol. 89(3), pages 649-665, June.
  7. Johannesson, Magnus, et al, 1999. "Calibrating Hypothetical Willingness to Pay Responses," Journal of Risk and Uncertainty, Springer, Springer, vol. 18(1), pages 21-32, April.
  8. Anthony Burton & Katherine Carson & Susan Chilton & W. Hutchinson, 2007. "Resolving questions about bias in real and hypothetical referenda," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 38(4), pages 513-525, December.
  9. Shogren, Jason F., 2006. "Experimental Methods and Valuation," Handbook of Environmental Economics, Elsevier, in: K. G. Mäler & J. R. Vincent (ed.), Handbook of Environmental Economics, edition 1, volume 2, chapter 19, pages 969-1027 Elsevier.
  10. Greiner, Ben, 2004. "An Online Recruitment System for Economic Experiments," MPRA Paper 13513, University Library of Munich, Germany.
  11. John List & Craig Gallet, 2001. "What Experimental Protocol Influence Disparities Between Actual and Hypothetical Stated Values?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 20(3), pages 241-254, November.
  12. Rolando Guzman & Charles Kolstad, 2007. "Researching Preferences, Valuation and Hypothetical Bias," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 37(3), pages 465-487, July.
  13. Todd Cherry & Peter Frykblom & Jason Shogren & John List & Melonie Sullivan, 2004. "Laboratory Testbeds and Non-Market Valuation: The Case of Bidding Behavior in a Second-Price Auction with an Outside Option," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 29(3), pages 285-294, November.
  14. Yohei Mitani & Nicholas E. Flores, 2009. "Demand Revelation, Hypothetical Bias, and Threshold Public Goods Provision," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 44(2), pages 231-243, October.
  15. Craig Landry & John List, 2007. "Using ex ante approaches to obtain credible signals for value in contingent markets: Evidence from the field," Framed Field Experiments 00168, The Field Experiments Website.
  16. Taylor, Laura O. & McKee, Michael & Laury, Susan K. & Cummings, Ronald G., 2001. "Induced-value tests of the referendum voting mechanism," Economics Letters, Elsevier, vol. 71(1), pages 61-65, April.
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  19. Harrison, Glen W. & Ronald M. Harstad & E. Elisabet Rutström, 1995. "Experimental Methods and Elicitation of Values," Discussion Paper Serie B 349, University of Bonn, Germany.
  20. James Murphy & Thomas Stevens & Lava Yadav, 2010. "A Comparison of Induced Value and Home-Grown Value Experiments to Test for Hypothetical Bias in Contingent Valuation," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 47(1), pages 111-123, September.
  21. Christian Vossler & Michael McKee, 2006. "Induced-Value Tests of Contingent Valuation Elicitation Mechanisms," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 35(2), pages 137-168, October.
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  23. repec:hal:wpaper:halshs-00277283 is not listed on IDEAS
  24. James Murphy & Thomas Stevens & Darryl Weatherhead, 2005. "Is Cheap Talk Effective at Eliminating Hypothetical Bias in a Provision Point Mechanism?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 30(3), pages 327-343, 03.
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Citations

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Cited by:
  1. Nicolas Jacquemet & Robert-Vincent Joule & Stephane Luchini & Jason Shogren, 2009. "Preference Elicitation under Oath," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00396721, HAL.
  2. Stephane Luchini & Verity Watson, 2008. "Does respondent uncertainty explain framing effects in double bounded contingent valuation?," Working Papers halshs-00285861, HAL.
  3. Eriksson, Stefan & Johansson, Per & Langenskiöld, Sophie, 2012. "What is the Right Profile for Getting a Job? A Stated Choice Experiment of the Recruitment Process," IZA Discussion Papers 6691, Institute for the Study of Labor (IZA).
  4. Nicolas Jacquemet & Alexander James & Stephane Luchini & Jason Shogren, 2011. "Social psychology and environmental economics: a new look at ex ante corrections of biased preference evaluation," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00584247, HAL.
  5. repec:hal:wpaper:halshs-00490448 is not listed on IDEAS
  6. repec:hal:journl:halshs-00584247 is not listed on IDEAS
  7. Stachtiaris, Spiros & Drichoutis, Andreas & Nayga, Rodolfo & Klonaris, Stathis, 2011. "Can religious priming induce truthful preference revelation?," MPRA Paper 34433, University Library of Munich, Germany.
  8. Charles R. Plott & Jean-Louis Rullière & Marie-Claire Villeval, 2011. "Introduction to the special issue Special issue on Behavioral Public Economics," Post-Print halshs-00661261, HAL.

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