Hypothetical Bias, Stated Choice Studies and Willingness to Pay



Hypothetical Bias, Stated Choice Studies and Willingness to Pay

Authors

D Hensher, University of Sydney, AU

Description

There is growing interest in establishing the extent of differences in willingness to pay (WTP) for attributes, such as travel time savings, that are derived from real choice settings and hypothetical (to varying degrees) settings.

Abstract

There is growing interest in establishing the extent of differences in willingness to pay (WTP) for attributes, such as travel time savings, that are derived from real choice settings and hypothetical (to varying degrees) settings. Non-experiment external validity tests involving observation of choice activity in a natural environment where the individuals do not know they are in an experiment are rare. In contrast the majority of tests are a test of external validity between hypothetical and actual experiments. Deviation from real market evidence is referred to in the literature broadly as hypothetical bias. The challenge is to identify such bias, and to the extent to which it exists, establishing possible ways to minimise it. This paper reviews the efforts to date to identify and ?calibrate? WTP derived from one or more methods that involve assessment of hypothetical settings, be they (i) contingent valuation methods, (ii) choice experiments involving trading attributes between multiple alternatives, with or without referencing, or (iii) methods involving salient or non-salient incentives linked to actual behaviour. Despite progress in identifying possible contributions to differences in marginal WTP, there is no solid evidence, although plenty of speculation, to explain the differences between all manner of hypothetical experiments and non-experimental evidence. The absence of non-experimental evidence from natural field experiments remains a major barrier to confirmation of under or over-estimation. We find, however, that the role of referencing of an experiment relative to a real experience, in the design of choice experiments, appears to offer great promise in the derivation of estimates of WTP that have a meaningful link to real market activity.

Publisher

Association for European Transport