Preference Anomalies, Preference Elicitation and the Discovered Preference Hypothesis

Braga, Jacinto; Starmer, Chris

doi:10.1007/s10640-005-6028-0

Cited by 126 publications

(88 citation statements)

References 58 publications

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“…Estimates of willingness-to-pay from SB data are less statistically significant than those from repeated choice data because of the absence of opportunities for institutional learning (Braga and Starmer, 2005) as well as the much lower number of choice observations. Some evidence suggests that estimating individual-specific taste intensities or the heterogeneity in taste intensities across a population using SB data is problematic (Rose et al, 2009).…”

Section: Introductionmentioning

confidence: 83%

A comparison of responses to single and repeated discrete choice questions

McNair

Bennett

Hensher

2011

Resource and Energy Economics

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According to neoclassical economic theory, a stated preference elicitation format comprising a single binary choice between the status quo and one alternative is incentive compatible under certain conditions. Formats typically used in choice experiments comprising a sequence of discrete choice questions do not hold this property.In this paper, the effect on stated preferences of expanding the number of binary choice tasks per respondent from one to four is tested using a split sample treatment in an attribute-based survey relating to the undergrounding of overhead electricity and telecommunications wires. We find evidence to suggest that presenting multiple choice tasks per respondent decreases estimates of expected willingness to pay. Preferences stated in the first of a sequence of choice tasks are not significantly different from those stated in the incentive compatible single binary choice task, but, in subsequent choice tasks, responses are influenced by cost levels observed in past questions. Three behavioural explanations can be advanced -weak strategic misrepresentation, reference point revision and cost-driven value learning. The evidence is contrary to the standard assumption of truthful response with stable preferences.

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Section: Introductionmentioning

confidence: 83%

A comparison of responses to single and repeated discrete choice questions

McNair

Bennett

Hensher

2011

Resource and Energy Economics

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“…Plott and Zeiler, 2005). With repetition and incentives, they may discover their consistent preferences (Plott, 1996) through a process of value learning -the understanding of features of their own preferencesand institutional learning -the understanding of how to best satisfy those preferences in the context of the specific trading institution (Braga and Starmer, 2005). As far as the stylised facts are concerned, however, this approach encounters several difficulties.…”

Section: Loss Aversion or Bad-deal Aversion?mentioning

confidence: 99%

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

Isoni

2010

Theory Decis

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Several experimental studies have reported that an otherwise robust regularity -the disparity between Willingness-To-Accept and Willingness-To-Pay -tends to be greatly reduced in repeated markets, posing a serious challenge to existing referencedependent and reference-independent models alike. This paper offers a new account of the evidence, based on the assumptions that individuals are affected by good and bad deals relative to the expected transaction price (price sensitivity), with bad deals having a larger impact on their utility ('bad-deal' aversion). These features of preferences explain the existing evidence better than alternative approaches, including the most recent developments of loss aversion models.Keywords: WTA/WTP disparity, price sensitivity, bad-deal aversion, Vickrey auctions, reference-dependence, loss aversion. JEL classification: D11, D44 1The disparity between the Willingness-To-Accept (WTA) and Willingness-To-Pay (WTP) measures of value has been one of the most widely studied behavioural regularities in the last four decades. The disparity -which has been documented in a large number of contingent valuation and experimental studies 1 -poses serious challenges to Hicksian consumer theory and its applications to welfare economics.While in Hicksian consumer theory WTA and WTP can reasonably be expected to differ only by a few percentage points (Willig, 1976;Randall and Stoll, 1980) many studies have reported differences of much higher orders of magnitude. Such large disparities suggest that indifference curves are not reversible (Knetsch, 1989). They imply that the impact of policies that produce changes in resource allocation cannot be evaluated indifferently using the two measures, and that the resulting welfare changes cannot be approximated by changes in consumer's surplus. If improvements and deteriorations are regarded as highly asymmetrical, the Coase theorem no longer holds. Even in the absence of transaction costs and income effects, the outcome of a negotiation critically depends on the allocation of property rights. Yet, recently, several studies have found that the extent of the disparity is greatly reduced for experienced traders (List, 2003a(List, , 2004 and when agents repeatedly interact in experimental markets (e.g. Shogren et al., 2001;Loomes et al., 2003).Taken at face value, this whole body of evidence poses a theoretical puzzle.On the one hand, the existence and robustness of the disparity in one-off situations seems to indicate that preferences depart from the assumptions of standard consumer theory in systematic ways. This has led to the development of reference-dependent models that incorporate such departures (e.g. Tversky and Kahneman, 1991;Sugden, 2003;Köszegi and Rabin, 2006;Loomes et al., 2009). On the other hand, preferences elicited in experimental markets, in which subjects face feedback, repetition, and incentives, appear sometimes to be compatible with the properties generally assumed in reference-independent economic models. This paper offers a solu...

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“…The 'discovered preference hypothesis' (DPH) postulates that preferences may be ill-defined when respondents come to a hypothetical market, but that a set of stable intrinsic values already exists within each individual (Braga and Starmer 2005). Through repetition, individuals will gradually discover their exact preferences and adjust their behavior accordingly.…”

Section: Theoretical Backgroundmentioning

confidence: 99%

Choice Certainty and Consistency in Repeated Choice Experiments

Brouwer

Dekker

Rolfe

et al. 2009

Environ Resource Econ

118

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The main objective of this study is to examine how repeated choice affects preference learning in stated preference experiments. We test different hypotheses related to preference learning by analyzing response patterns and asking respondents in a choice experiment to report their experienced certainty when going through the choice tasks. In a split-sample test, we show that follow-up choice certainty questions are procedural invariant. The self-reported certainty results indicate that learning occurs, but econometric testing procedures do not identify any significant impact of learning effects on parameter estimates or variance across choice tasks. Additional tests of choice consistency suggest that preferences in the choice experiment are stable and coherent.

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Preference Anomalies, Preference Elicitation and the Discovered Preference Hypothesis

Cited by 126 publications

References 58 publications

A comparison of responses to single and repeated discrete choice questions

A comparison of responses to single and repeated discrete choice questions

The willingness-to-accept/willingness-to-pay disparity in repeated markets: loss aversion or ‘bad-deal’ aversion?

Choice Certainty and Consistency in Repeated Choice Experiments

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