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

• Published in: Environmental & resource economics Vol. 68; no. 3; pp. 777 - 796
• Main Authors: Andor, Mark A., Frondel, Manuel, Vance, Colin
• Format: Journal Article
• Language: English
• Published: Dordrecht Springer Netherlands 01-11-2017; Springer Nature B.V
• Subjects: Bias; Economic models; Economic Policy; Economics; Economics and Finance; Environmental Economics; Environmental Law/Policy/Ecojustice; Environmental Management; Heterogeneity; Households; Power; Regression models; Respondents; Scripts; Statistical analysis; Uncertainty; Willingness to pay; Q21; Certainty approach; Willingness-to-pay; D12; Cheap talk; Q41
• ISSN: 0924-6460; 1573-1502
• DOI: 10.1007/s10640-016-0047-x

The overestimation of willingness-to-pay (WTP) in hypothetical responses is a well-known finding in the literature. Various techniques have been proposed to remove or, at least, reduce this bias. Using about 30,000 responses on WTP for a variety of power mixes from a panel of 6500 German households and the fixed-effects estimator to control for unobserved heterogeneity, this article simultaneously explores the effects of two common ex-ante approaches—cheap talk and consequential script—and 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 evidence for a lower WTP among those respondents who classify themselves as definitely certain about their answers. Although neither cheap talk nor the consequential-script corrective reduce WTP estimates, receiving either of these scripts increases the probability that respondents indicate definite certainty about their WTP bids.