A Meta-Analysis of Hypothetical Bias in Stated Preference Valuation

University of Massachusetts, Amherst Working Paper No. 2003-8

44 Pages Posted: 29 Sep 2003

See all articles by James J. Murphy

James J. Murphy

University of Alaska Anchorage

P. Geoffrey Allen

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

Thomas Stevens

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics

Darryl A. Weatherhead

Government of the United States of America - Environmental Protection Agency (EPA)

Date Written: August 2003

Abstract

Individuals are widely believed to overstate their economic valuation of a good by a factor of two or three. This paper reports the results of a meta-analysis of hypothetical bias in 28 stated preference valuation studies that report monetary willingness-to-pay and that used the same mechanism for eliciting both hypothetical and actual values. The papers generated 83 observations with a median value of the ratio of hypothetical to actual value of 1.35, and the distribution has severe positive skewness. Since a comprehensive theory of hypothetical bias has not been developed, we use a set of explanatory variables based on issues that have been investigated in previous research. We find that a choice-based elicitation mechanism is important in reducing bias, though an insufficient number of studies and confounding with other variables prevents us from characterizing individual mechanisms. We provide some evidence that the use of student subjects may be a source of bias, but this variable is highly correlated with group experimental settings and no firm conclusions can be drawn. There is some weak evidence that bias increases when public goods are being valued, and that some calibration methods are effective at reducing bias. Results are quite sensitive to model specification, which will remain a problem until a comprehensive theory of hypothetical bias is developed.

Keywords: Contingent valuation, experiments, hypothetical bias, meta-analysis, stated preference

JEL Classification: C9, Q26, Q28, H41

Suggested Citation

Murphy, James J. and Allen, P. Geoffrey and Stevens, Thomas and Weatherhead, Darryl A., A Meta-Analysis of Hypothetical Bias in Stated Preference Valuation (August 2003). University of Massachusetts, Amherst Working Paper No. 2003-8. Available at SSRN: https://ssrn.com/abstract=437620 or http://dx.doi.org/10.2139/ssrn.437620

James J. Murphy (Contact Author)

University of Alaska Anchorage ( email )

Anchorage, AK
United States
907-786-1936 (Phone)

HOME PAGE: http://faculty.cbpp.uaa.alaska.edu/jmurphy/

P. Geoffrey Allen

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States

Thomas Stevens

University of Massachusetts at Amherst - College of Natural Resources & the Environment - Department of Resource Economics ( email )

Stockbridge Hall
80 Campus Center Way
Amherst, MA 01003-9246
United States

Darryl A. Weatherhead

Government of the United States of America - Environmental Protection Agency (EPA) ( email )

U.S. Environmental Protection Agency (1809T)
MD:C339-01
Research Triangle Park, NC 27711
United States
919-541-2270 (Phone)
919-541-8309 (Fax)

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