Mitigating hypothetical bias
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Date
2015
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Abstract
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 6,500 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.
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Keywords
willingness-to-pay, certainty approach, cheap talk