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A New Approach to Correct for Hypothetical Bias in Stated Preference Models

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  • Davies, Stephen P.
  • Loomis, John B.

Abstract

Many times economists are asked to estimate the demand for new consumer goods or services for which no market data exists. Typically market researchers and economists answer this challenge using surveys that ask about intended purchases (Louviere, et al. 2000) or what has become known as stated preference (SP) data. Tying this data to revealed preference (RP), or actual behavior, has been a target in a number of studies. Simplistic calibrations have been investigated in past RP-SP studies, such as Loomis, et al. 2001. This paper offers an alternative solution that allows the magnitude of the calibration correction to vary based on Klein and Sherman's (1997) Orbit procedure. This paper extends the original Orbit procedure of Klein and Sherman by Combining stated and revealed preference data on quantities and prices in the first stage, incorporating a correction for heteroskedasticity, and developing methods to calculate consumer surplus and elasticities.

Suggested Citation

  • Davies, Stephen P. & Loomis, John B., 2006. "A New Approach to Correct for Hypothetical Bias in Stated Preference Models," 2006 Annual meeting, July 23-26, Long Beach, CA 21204, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    • Handle: RePEc:ags:aaea06:21204
    DOI: 10.22004/ag.econ.21204
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    References listed on IDEAS

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