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Contingent Valuation, Hypothetical Bias, and Experimental Economics

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  • Murphy, James J.
  • Stevens, Thomas H.

Abstract

Although the contingent valuation method has been widely used to value a diverse array of nonmarket environmental and natural resource commodities, recent empirical evidence suggests it may not accurately estimate real economic values. The hypothetical nature of environmental valuation surveys typically results in responses that are significantly greater than actual payments. Economists have had mixed success in developing techniques designed to control for this "hypothetical bias." This paper highlights the role of experimental economics in addressing hypothetical bias, and identifies a gap in the existing literature by focusing on the underlying causes of this bias. Most of the calibration techniques used today lack a theoretical justification, and therefore these procedures need to be used with caution. We argue that future experimental research should investigate the reasons hypothetical bias persists. A better understanding of the causes should enhance the effectiveness of calibration techniques.

Suggested Citation

  • Murphy, James J. & Stevens, Thomas H., 2004. "Contingent Valuation, Hypothetical Bias, and Experimental Economics," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 33(2), October.
  • Handle: RePEc:ags:arerjl:31262
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    Cited by:

    1. Poe, Gregory L. & Vossler, Christian A., 2009. "Consequentiality and contingent values: an emerging paradigm," MPRA Paper 38864, University Library of Munich, Germany.
    2. Nicolas Jacquemet & Robert‐Vincent Joule & Stéphane Luchini & Jason F. Shogren, 2011. "Do People Always Pay Less Than They Say? Testbed Laboratory Experiments with IV and HG Values," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 13(5), pages 857-882, October.
    3. Frode Alfnes & Chengyan Yue & Helen H. Jensen, 2010. "Cognitive dissonance as a means of reducing hypothetical bias," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 37(2), pages 147-163, June.
    4. Christian Vossler & Michael McKee, 2006. "Induced-Value Tests of Contingent Valuation Elicitation Mechanisms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 35(2), pages 137-168, October.
    5. 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, Springer;European Association of Environmental and Resource Economists, vol. 47(1), pages 111-123, September.
    6. Mark Morrison & Thomas Brown, 2009. "Testing the Effectiveness of Certainty Scales, Cheap Talk, and Dissonance-Minimization in Reducing Hypothetical Bias in Contingent Valuation Studies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(3), pages 307-326, November.
    7. Michał Krawczyk, 2011. "Overconfident for real? Proper scoring for confidence intervals," Working Papers 2011-15, Faculty of Economic Sciences, University of Warsaw.
    8. Juan Cardenas, 2011. "Social Norms and Behavior in the Local Commons as Seen Through the Lens of Field Experiments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 48(3), pages 451-485, March.
    9. Magdalena Brzozowicz & Michał Krawczyk & Przemysław Kusztelak, 2017. "Do anchors hold for real? Anchoring effect and hypothetical bias in declared WTP," Working Papers 2017-24, Faculty of Economic Sciences, University of Warsaw.
    10. Roheim, Cathy A. & Johnston, Robert J., 2005. "A Battle of Taste and Environmental Convictions for Ecolabeled Seafood: A Choice Experiment," 2005 Annual meeting, July 24-27, Providence, RI 19357, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    11. Celine Michaud & Daniel Llerena & Iragael Joly, 2013. "Willingness to pay for environmental attributes of non-food agricultural products: a real choice experiment," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 40(2), pages 313-329, March.
    12. Krawczyk, Michał, 2012. "Testing for hypothetical bias in willingness to support a reforestation program," Journal of Forest Economics, Elsevier, vol. 18(4), pages 282-289.
    13. Juan Camilo Cárdenas, 2009. "Experiments in Environment and Development," Annual Review of Resource Economics, Annual Reviews, vol. 1(1), pages 157-182, September.
    14. Ryan, Anthony M. & Spash, Clive L., 2011. "Is WTP an attitudinal measure? Empirical analysis of the psychological explanation for contingent values," Journal of Economic Psychology, Elsevier, vol. 32(5), pages 674-687.
    15. Michael Farmer & Clifford Lipscomb, 2008. "Conservative dichotomous choice responses in the active policy setting: DC rejections below WTP," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(3), pages 223-246, March.
    16. Johnston, Robert J., 2006. "Is hypothetical bias universal? Validating contingent valuation responses using a binding public referendum," Journal of Environmental Economics and Management, Elsevier, vol. 52(1), pages 469-481, July.
    17. repec:spr:waterr:v:31:y:2017:i:13:d:10.1007_s11269-017-1733-3 is not listed on IDEAS
    18. Sund, Björn, 2009. "Certainty calibration in contingent valuation - exploring the within-difference between dichotomous choice and open-ended answers as a certainty measure," Working Papers 2009:1, Örebro University, School of Business.
    19. repec:bla:ecinqu:v:55:y:2017:i:1:p:352-367 is not listed on IDEAS

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