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Status Quo Effect and Preferences Uncertainty: A Heteroscedastic Extreme Value (HEV) Model

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  • Hasan-Basri, Bakti

    (School of Economics, Finance and Banking College of Business, Universiti Utara Malaysia 06010, Sintok, Kedah MALAYSIA)

  • Yahya, Nurul

    (Department of Commerce Politeknik Sultan Abdul Halim Muadzam Shah (POLIMAS) 06000, Jitra, Kedah MALAYSIA)

  • Musa, Rusmani

    (School of Economics, Finance and Banking College of Business, Universiti Utara Malaysia 06010, Sintok, Kedah MALAYSIA)

Abstract

Analysts must include the status quo (SQ) option as one of the alternatives in the Choice Experiments (CE) technique to ensure the technique is consistent with the Hicksian welfare analysis. However, it comes at a price. Usually, respondents choose the option not because it provides the highest utility but to avoid making difficult decisions or to protest the attributes trade-off. One solution for investigating the effect of the SQ option is through the inclusion of the alternative specific constant (ASC) in an estimation model. However, the solution is not applicable for an estimation model that has no ASC. In the present study, the heteroscedastic extreme value (HEV) model is applied to investigate the affect of the SQ effect on preference uncertainty. By analysing respondents’ preferences relating to attributes at recreational parks, the results suggest that more uncertainty exists in the SQ option, while less uncertainty exists in the hypothetical alternatives.

Suggested Citation

  • Hasan-Basri, Bakti & Yahya, Nurul & Musa, Rusmani, 2013. "Status Quo Effect and Preferences Uncertainty: A Heteroscedastic Extreme Value (HEV) Model," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 47(1), pages 163-172.
    • Handle: RePEc:ukm:jlekon:v:47:y:2013:i:1:p:163-172
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    References listed on IDEAS

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