Ruhr Economic Papers

Ruhr Economic Papers #480

Mitigating Hypothetical Bias – Evidence on the Effects of Correctives from a Large Field Study

by Mark Andor, Manuel Frondel and Colin Vance

RUB, RWI, 04/2014, 27 S./p., 8 Euro, ISBN 978-3-86788-544-7 DOI: 10.4419/86788544

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Abstract

The overestimation of willingness-to-pay (WTP) in hypothetical responses is a wellknown finding in the literature. Various techniques have been proposed to remove or, at least, reduce this bias. Using responses from a panel of about 6,500 German households on their WTP for a variety of power mixes, this article undertakes an analysis that combines two common ex-ante approaches – cheap talk and consequential script – with the ex-post certainty approach to calibrating hypothetical WTP responses. Based on a switching regression model that accounts for the potential endogeneity of respondent certainty, we find that while neither the cheap-talk nor the consequential script corrective bears on the estimates of WTP, there is evidence for a lower WTP among those respondents who classify themselves as definitely certain about their answers.

JEL-Classification: D12, Q21, Q41

Keywords: Willingness-to-pay; cheap talk; certainty approach

Published as:

Andor, M., M. Frondel and C. Vance (2017), Mitigating Hypothetical Bias: Evidence on the Efforts of Correctives from a Large Field Study. Environmental and Resource Economics (forthcoming) DOI: 10.1007/s10640-016-0047-x 

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