Hypothetical Bias for Private Goods: Does Cheap Talk Make a Difference?

Abstract

Economists and market researchers often need to accurately gauge consumers’ willingness-to-pay for private goods. The experimental literature has identified a problem of hypothetical bias when using stated preferences techniques, such as open-ended questions. It has been suggested that using a cheap talk script has the potential to resolve this bias. Yet, few empirical studies on the efficiency of cheap talk for private goods exist. This study uses a between-subjects experimental design to compare consumers’ willingness-to-pay for DHA-enriched milk using three elicitation methods: 1) Hypothetical open-ended stated preference question, without monetary consequence for the respondent; 2) Idem to the first with the addition of a cheap talk script; and 3) A Vickrey auction with real monetary consequences. In this experiment subjects have the choice to participate, or not, at each period. Our results indicate a significant hypothetical bias. While the use of cheap talk has no impact on this bias, it does however increase the level of participation to the market.

Share and Cite:

Doyon, M. , Saulais, L. , Ruffieux, B. and Bweli, D. (2015) Hypothetical Bias for Private Goods: Does Cheap Talk Make a Difference?. Theoretical Economics Letters, 5, 749-756. doi: 10.4236/tel.2015.56087.

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1] Lusk, J.L., Jamal, M., Kurlander, L., Roucan, M. and Taulman, L. (2005) A Meta-Analysis of Genetically Modified Food Valuation Studies. Journal of Agricultural and Resource Economics, 30, 28-44.
[2] Miller, K.M., Hofstetter, R., Krohmer, H. and Zhang, Z.J. (2011) How Should Consumers’ Willingness to Pay Be Measured? An Empirical Comparison of State-of-the-Art Approaches. Journal of Marketing Research, 148, 172-184. http://dx.doi.org/10.1509/jmkr.48.1.172
[3] Lusk, J.L. (2003) Effect of Cheap Talk on Consumer Willingness-to-Pay for Golden Rice. American Journal of Agricultural Economics, 85, 840-856. http://dx.doi.org/10.1111/1467-8276.00492
[4] Murphy, J.J., Allen, P.G., Stevens, T.H. and Weatherhead, D. (2005) A Meta-Analysis of Hypothetical Bias in Stated Preference Valuation. Environmental and Resource Economics, 30, 313-325. http://dx.doi.org/10.1007/s10640-004-3332-z
[5] Stefani, S., Scarpa, R. and Lombardi, G.V. (2014) An Addendum to: A Meta-Analysis of Hypothetical Bias in Stated Preference Valuation. Bio-Based and Applied Economics, 3, 175-184.
[6] Blackburn, M., Harrison, G. and Rutstrom, E. (1994) Statistical Bias Functions and Informative Hypothetical Surveys. American Journal of Agricultural Economics, 76, 1084-1088. http://dx.doi.org/10.2307/1243396
[7] Champ, P. and Bishop, R.C. (2001) Donation Payment Mechanisms and Contingent Valuation: An Empirical Study of Hypothetical Bias. Environmental and Resource Economics, 19, 383-402. http://dx.doi.org/10.1023/A:1011604818385
[8] Cummings, R.G. and Taylor, L.O. (1999) Unbiased Value Estimates for Environmental Goods: A Cheap Talk Design for the Contingent Valuation Method. American Economic Review, 89, 649-665. http://dx.doi.org/10.1257/aer.89.3.649
[9] List, J. and Gallet, C. (2001) What Experimental Protocol Influences Disparities between Actual and Hypothetical Stated Values? Environmental and Resource Economics, 20, 241-254. http://dx.doi.org/10.1023/A:1012791822804
[10] Aadland, D. and Caplan, A. (2003) Willingness to Pay for Curbside Recycling with Detection and Mitigation of Hypothetical Bias. American Journal of Agricultural Economics, 85, 491-502. http://dx.doi.org/10.1111/1467-8276.00136
[11] Harrison, G. (2006) Experimental Evidence on Alternative Environmental Valuation Methods. Environmental and Resource Economics, 34, 125-162. http://dx.doi.org/10.1007/s10640-005-3792-9
[12] Loomis, J. (2011) What’s to Know about Hypothetical Bias in Stated Preference Valuation Studies? Journal of Economic Surveys, 25, 363-370. http://dx.doi.org/10.1111/j.1467-6419.2010.00675.x
[13] List, J. (2001) Do Explicit Warnings Eliminate the Hypothetical Bias in Elicitation Procedures? Evidence from Field Auctions for Sportscards. American Economic Review, 91, 1498-1507. http://dx.doi.org/10.1257/aer.91.5.1498
[14] Carlsson, F., Frykblomet, P. and Lagerkvist, C.J. (2005) Using Cheap Talk as a Test of Validity in Choice Experiments. Economics Letters, 89, 147-152. http://dx.doi.org/10.1016/j.econlet.2005.03.010
[15] Carlberg, J.G. and Froehlich, E.J. (2011) Effect of Illicitation Method on Willingness-to-Pay: Evidence from the Field. Journal of Food Distribution Research, 42, 27-35.
[16] Chowdhury, S., Meenakshi, J.V., Tomlins, K.I. and Owori, C. (2011) Are Consumers in Developing Countries Willing to Pay More for Micronutrient-Dense Biofortified Foods? Evidence from a Field Experiment in Uganda. American Journal of Agricultural Economics, 93, 83-97. http://dx.doi.org/10.1093/ajae/aaq121
[17] Silva, A., Nayga, R.M., Campbell, B.L. and Park, J.L. (2011) Revisiting Cheap Talk with New Evidence from a Field Experiment. Journal of Agricultural and Resource Economics, 36, 280-291.
[18] Tonsor, G.T. and Shupp, R.S. (2011) Cheap Talk Scripts and Online Choice Experiments: Looking beyond the Mean. American Journal of Agricultural Economics, 93, 1015-1031. http://dx.doi.org/10.1093/ajae/aar036
[19] Brummett, R.G., Nayga, R.M. and Wu, X. (2007) On the Use of Cheap Talk in New Product Valuation. Economic Bulletin, 2, 1-9.
[20] Blummenschein, K., Blomquist, G.C., Johannesson, M., Horn, N. and Freeman, P. (2008) Eliciting Willingness to Pay without Bias: Evidence from a Field Experiment. Economic Journal, 118, 114-137. http://dx.doi.org/10.1111/j.1468-0297.2007.02106.x
[21] Silva, A., Nayga, R.M., Campbell, B. and Park, J.L. (2012) Can Perceived Task Complexity Influence Cheap Talk’s Effectiveness in Reducing Hypothetical Bias in Stated Choice Studies. Applied Economics Letters, 19, 1711-1714. http://dx.doi.org/10.1080/13504851.2012.667532
[22] Aadland, D. and Caplan, A. (2006) Cheap Talk Reconsidered: New Evidence from CVM. Journal of Economic Behavior and Organization, 60, 562-578. http://dx.doi.org/10.1016/j.jebo.2004.09.006
[23] Shogren, J.F., Margolis, M., Koo, C. and List, J. (2001) A Random nth-Price Auction. Journal of Economic Behavior & Organization, 46, 409-421. http://dx.doi.org/10.1016/S0167-2681(01)00165-2
[24] Ami, D., Aprahamian, F., Chanel, O. and Luchini, S. (2011) A Test of Cheap Talk in Different Hypothetical Contexts: The Case of Air Pollution. Environmental and Resource Economics, 50, 111-130. http://dx.doi.org/10.1007/s10640-011-9464-z
[25] Doyon, M., Jullien, C. and Labrecque, J. (2012) Mesure des propensions individuelles à payer pour les aliments fonctionnels: Une approche expérimentale. Revue Francaise d’économie, XXVI, 95-119. http://dx.doi.org/10.3917/rfe.113.0095
[26] Cummings, R.G., Elliott, S., Harrison, G.W. and Murphy, J. (1997) Are Hypothetical Referenda Incentive Compatible? Journal of Political Economy, 105, 609-621. http://dx.doi.org/10.1086/262084

Copyright © 2022 by authors and Scientific Research Publishing Inc.

Creative Commons License

This work and the related PDF file are licensed under a Creative Commons Attribution 4.0 International License.