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Incorporating Outcome Uncertainty and Prior Outcome Beliefs in Stated Preferences

Author

Listed:
  • Thomas Lundhede
  • Jette Bredahl Jacobsen
  • Nick Hanley
  • Niels Strange
  • Bo Jellesmark Thorsen

Abstract

Stated preference studies tell respondents that policies create environmental changes with varying levels of uncertainty. However, respondents may include their own a priori assessments of uncertainty when making choices among policy options. Using a choice experiment eliciting respondents’ preferences for conservation policies under climate change, we find that higher outcome uncertainty reduces utility. When accounting for endogeneity, we find that prior beliefs play a significant role in this cost of uncertainty. Thus, merely stating “objective†levels of outcome uncertainty will not necessarily solve the problem of people valuing something differently from originally intended: respondents’ prior beliefs must be accounted for.

Suggested Citation

  • Thomas Lundhede & Jette Bredahl Jacobsen & Nick Hanley & Niels Strange & Bo Jellesmark Thorsen, 2015. "Incorporating Outcome Uncertainty and Prior Outcome Beliefs in Stated Preferences," Land Economics, University of Wisconsin Press, vol. 91(2), pages 296-316.
  • Handle: RePEc:uwp:landec:v:91:y:2015:i:2:p:296-316
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    References listed on IDEAS

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    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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