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

Maurice Doyon^1*, Laure Saulais², Bernard Ruffieux³, Denise Bweli⁴

¹Laval University, Quebec City, Canada.
²Institut Paul Bocuse Food and Hospitality Research Centre, Ecully, France.
³Institut National Polytechnique de Grenoble, Grenoble, France.
⁴Egg Farmers of Canada, Ottawa, Canada.

DOI: 10.4236/tel.[phone]                

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.

Keywords

Experimental Economics, Willingness-to-Pay, Cheap Talk, Hypothetical Bias

Conflicts of Interest

The authors declare no conflicts of interest.

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