A Meta-Analysis of Hypothetical Bias in Stated Preference Valuation

Abstract

A meta-analysis of hypothetical bias in stated preference valuation" (2005 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 used the same mechanism for eliciting both hypothetical and actual values. The papers generated 83 observations with a median ratio of hypothetical to actual value of only 1.35, and the distribution has severe positive skewness. We find that a choice-based elicitation mechanism is important in reducing bias. We provide some evidence that the use of student subjects may be a source of bias, but since this variable is highly correlated with group experimental settings, firm conclusions cannot be drawn. There is some weak evidence that bias increases when public goods are being valued, and that some calibration methods may be effective at reducing bias. However, results are quite sensitive to model specification, which will remain a problem until a comprehensive theory of hypothetical bias is developed.

How well do discrete choice experiments predict health choices? A systematic review and meta-analysis of external validity

“…Assessing the external validity of WTP estimates was beyond the scope of this review, whilst the external validity of WTP estimates have been robustly assessed in three systematic reviews and meta-analyses since 2004 [35][36][37]. In addition, included studies must have been able to define participants' choice sets in the real world, implicitly limiting the scope of this review to predictions of choices within choice sets which can be represented consistently in a stable manner across real-world and hypothetical tasks, e.g., uptake of a test, but not adherence to a treatment over time.…”

“…The external validity of WTP estimates has been explored fully and recently in the literature, and we therefore do not include WTP studies in this review. This work explores the external validity of willingness-to-pay estimates from contingent valuations and conjoint analyses, mostly in transport fields [32][33][34], including three meta-analyses [35][36][37]. These studies conclude that hypothetical bias can be substantial, with median bias levels ranging from 25 to 300%.…”

Hypothetical Bias in Dichotomous Choice Contingent Valuation Studies

“…List and Gallet 2001 found that willingness-to-pay studies have a lower bias than those that estimate willingness-to-accept, and that to some extent this bias may vary across elicitation mechanisms. Murphy, et al 2005 note that the number of willingness-to-accept studies is quite small and List and Gallet's result is sensitive to the outcomes of a single study. Similarly, many elicitation mechanisms in List and Gallet have only a single study so their conclusions about elicitation mechanisms should be interpreted with caution.…”

“…There is substantial evidence that these hypothetical values exceed actual payments (List and Gallet 2001;Murphy, et al 2005;Harrison and Rutström, forthcoming). In recognition of this hypothetical bias problem, the NOAA guidelines state that CV value estimates should be halved unless responses can be calibrated (Arrow, et al 1993).…”

“…Similarly, many elicitation mechanisms in List and Gallet have only a single study so their conclusions about elicitation mechanisms should be interpreted with caution. Because of the lack of variability in the types of elicitation mechanisms, Murphy, et al 2005 group elicitation mechanisms based on whether they are choice-based (e.g., dichotomous choice, referendum, etc. ), and find that these mechanisms yield less hypothetical bias.…”