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Explaining Hypothetical Bias Variations Using Income Elasticity of Demand

Author

Listed:
  • Félix Muñoz-García

    (Washington State University)

  • Tongzhe Li

    (University of Windsor)

Abstract

Experimental methods have been widely used to elicit consumer preferences. However, the estimates are challenged because the existing literature indicates that individuals overstate their economic valuation in hypothetical settings, thus giving rise to the so-called “hypothetical bias.” Although many studies seek to experimentally test which factors emphasize or ameliorate the hypothetical bias, no studies analyze its theoretical foundations. Our results also provide empirically testable implications, such as that hypothetical bias increases in a commodity’s income elasticity of demand and budget share.

Suggested Citation

  • Félix Muñoz-García & Tongzhe Li, 2018. "Explaining Hypothetical Bias Variations Using Income Elasticity of Demand," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 35(3), pages 207-224, September.
    • Handle: RePEc:spr:homoec:v:35:y:2018:i:3:d:10.1007_s41412-018-0076-5
    DOI: 10.1007/s41412-018-0076-5
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    More about this item

    Keywords

    Experiments; Hypothetical bias; Income elasticity; Willingness to pay;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D10 - Microeconomics - - Household Behavior - - - General

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