Incentive and informational properties of preference questions

Surveys are frequently used by businesses and governments to elicit information about the public’s preferences. They have become the most common way to gather preference information regarding goods, that are not (or are not yet) bought or sold in markets. In this paper we apply the standard neoclassical economic framework to generate predictions about how rational agents would answer such survey questions, which in turn implies how such survey data should be interpreted. In some situations, the standard economic model would be expected to have no predictive power. For situations where it does have predictive power, we compare different survey formats with respect to: (a) the information that the question itself reveals to the respondent, (b) the strategic incentives the respondent faces in answering the question, and (c) the information revealed by the respondent’s answer. Earlier versions of this paper have been presented as a plenary address to the European Association of Environmental and Resource Economics in Oslo, as an invited paper at the Japanese Forum on Environmental Valuation meeting in Kobe, and at a NOAA conference on stated preference methods.     

Construct Validity of Dichotomous and Polychotomous Choice Contingent Valuation Questions

In this note we conduct construct validity tests for dichotomous choice (DC) and polychotomous choice (PC) contingent valuation questions. Contrary to previous results, we find that DC and PC estimates of willingness to pay are theoretically valid, convergent valid, and similar in terms of statistical precision. Similar to previous results, PC respondents are less sensitive to information than DC respondents. We conclude that DC and PC valuation questions are construct valid for this study. Sequential PC valuation questions could be used in studies where obtaining information about the certainty or intensity of respondent preferences would be useful.     

Latent preferences and valuation of wetland ecosystem restoration

We employ a latent class choice model to evaluate the effects of alternative ecological characterizations of wetland functions and services on individual preferences, and to determine whether socioeconomic factors and psychometric measures of environmental attitudes can explain differences in individual's preferences and values for wetland restoration. This analysis combines a multiattribute choice model with information on individual's characteristics to evaluate preferences for restoration of the Greater Everglades ecosystem, one of the largest and most comprehensive wetland ecosystem restoration projects. To identify potential endpoints for Everglades restoration, two alternative ecological characterizations of the ecosystem were developed using the familiar distinction between function and structure. Survey data from a representative sample of the general population were used in a split-sample design based on the ecological characterization treatment. Within each subsample, the latent class analysis identified three groups who varied in their preferences for ecosystem restoration and socioeconomic profiles. The ecological characterizations had a significant influence on respondents' preferences and willingness to pay (WTP). The subsample responding to the structural characterization had a significantly larger share of respondents in the group who favored proposed restoration plans than the functional attribute subsample. In both subsamples, the group who favored restoration had a higher WTP for restoration than other groups. The latent class analysis also revealed socioeconomic and attitudinal factors that explain some of the heterogeneity in preferences and WTP within each subsample; this heterogeneity would not be identified with a standard choice model. In the context of Everglades restoration, the results provide a baseline assessment of public support and WTP that suggests an emphasis on structural rather than functional restoration endpoints. The approach described in this article can be used in other policy studies of wetland ecosystems because multiple ecosystem services can be represented within a stated choice survey and differences in preferences and values for these services can be measured.     

Salt or Sludge? Exploring Preferences for Potable Water Sources

Decision makers often use information about public preferences to guide public policy. Several disciplines gather information on preferences through surveys by asking respondents to make hypothetical choices over potential policies. However the context of the choice question differs between approaches, with some failing to make the full consequences of the respondent’s choice explicit in the question. In this study we investigate whether question context matters, by exploring whether economic and psychology approaches yield a similar understanding of community preferences towards a large-scale recycled wastewater scheme. We find that stated preferences differ depending on whether the preference question is contextualised using economic incentives. The findings provide insight into the implications of inappropriately contextualised preference questions, methodological considerations in attitude identification and estimation, and the diversity of values and public attitudes towards recycled wastewater.     

Quantifying public preferences for agri-environmental policy in Scotland: A comparison of methods

This paper compares two methods for determining policy priorities for reform of Scottish agricultural support. Multifunctional agriculture attempts to establish a new balance between traditional commodity support and payment for the production of non-market goods and services that are increasingly demanded by the public. Supplying non-market goods presents particular problems for optimal policy design, not least the elicitation of consumer demand for those goods. From public focus groups, a range of attributes was derived as central to the Scottish public’s preferences for future agri-environmental reform. This information was then combined in two separate survey methods using the Analytical Hierarchy Process (AHP) and choice experiments (CE). Both applications suggest that the public has defined preferences and a willingness to pay (using general income taxation) to affect changes beyond the status quo, and that policy payments should be targeted towards both environmental and social benefits. The divergent preference orderings derived from the alternative methods can be considered in the light of previous methodological debates on question framing, bounded rationality and respondent uncertainty. We speculate about the validity of alternative methodologies for informing particular policy questions.     

A Meta-study Investigating the Sources of Protest Behaviour in Stated Preference Surveys

It is a well-known empirical finding that some percentage of respondents participating in Stated Preference surveys will not give responses that reflect their true preferences. One reason is protest behaviour. If the distribution of protest responses is not independent of respondent or survey characteristics, then simply expelling protesters from surveys can lead to sample selection bias. Furthermore, WTP estimates will not be comparable across surveys. This paper seeks to explore potential causes of protest behaviour through a meta-study based on full datasets from 38 different surveys. The objective of the study is to examine the effect of respondent specific variables as well as survey specific variables on protest behaviour. Our results suggest that some of the differences in WTP typically observed between different demographic groups, different elicitation formats and different question formats might actually be attributed to inherent differences in the propensity to protest. Our results indicate that the propensity for respondents to exhibit protest behaviour when asked a stated preference type valuation question depends on a number of specific factors, respondent specific as well as survey specific—knowledge which could be used in order to reduce protest behaviour.     

Contingent valuation: A new perspective

After several decades of academic research on the contingent valuation (CV) method a consistent behavioral explanation of ‘hypothetical bias’ is still lacking. Based on evidence from economics, economic psychology and the political sciences, I propose an explanation that is based on two simple working hypotheses about respondent behavior in contingent valuation surveys. The first hypothesis is that survey respondents are unable to form consistent preferences about unfamiliar goods unless the choice context offers reliable, informative cues which can be rationally exploited in simplified heuristics. The second hypothesis is that the probability and impact of strategic responses in dichotomous-choice questions about public goods depends on the extent to which the presented hypothetical costs differ from the actual costs. The literature on hypothetical bias is revisited in the light of these behavioral hypotheses. I find that the hypotheses are generally supported by the empirical data. Moreover, the hypotheses are able to explain several important empirical phenomena that previous research has not been able to explain. In particular, they solve the puzzle that pre-election polls, but not CV surveys, are able to predict actual referendum outcomes, and they explain why income effects on willingness to pay are lower in CV responses than in actual votes. If confirmed by further studies, the hypotheses will have important implications for future research and practice. First, the hypothetical costs presented in the dichotomous-choice question should to be close enough to the actual costs to be credible to all respondents. This can be achieved by specifying the costs as a percentage (rather than absolute) change in taxes. Second, the respondents should be given the option to answer based on information about the positions of large parties and interest groups with known political orientation rather than based on the raw policy information. Theory and evidence suggest that this new survey paradigm largely eliminates the fundamental problems of the conventional stated preference methods.     

Incorporating Discontinuous Preferences into the Analysis of Discrete Choice Experiments

Data from a discrete choice experiment on improvements of rural landscape attributes are used to investigate the implications of discontinuous preferences on willingness to pay estimates. Using a multinomial error component logit model, we explore differences in scale and unexplained variance between respondents with discontinuous and continuous preferences and condition taste intensities on whether or not each attribute was considered by the respondent during the evaluation of alternatives. Results suggest that significant improvements in model performance can be achieved when discontinuous preferences are accommodated in the econometric specification, and that the magnitude and robustness of the willingness to pay estimates are sensitive to discontinuous preferences.     

Advocacy and political convergence under preference uncertainty

We study the formation of advocacy groups and how they can impact policy outcomes by revealing information about voters׳ preferences to uninformed political candidates. We conduct a laboratory experiment based on a two-candidate spatial electoral competition setting where the policy preferences of voters are (initially) unknown and change over time. In the control treatment candidates learn about the preferred policy of the median voter through the voting outcome of elections. In the advocacy treatments, voters can organize themselves into advocacy groups in order to reveal their policy preferences. We find that voters often overcome the collective action problem of forming an advocacy group. In fact, we observe the formation of both informative advocacy groups, which convey new information, and uninformative advocacy groups, which do not. Overall, advocacy groups significantly speed up the convergence to the preferred policy of the median voter. However, advocacy does not lead to higher earnings as the gains from faster convergence are offset by the costs of group formation.     

Competitive politics, simplified heuristics, and preferences for public goods

This paper examines the role of simplified heuristics in the formation of preferences for public goods. Political scientists have suggested that voters use simplified heuristics based on the positions of familiar parties to infer how a proposed policy will affect them and to cast a vote in line with their interests and values. Here, we use a two-stage field-survey experiment to investigate how knowledge of party positions affects policy choices. We followed standard procedures in developing an attribute-based choice experiment on alternative land-use policies in Switzerland. In contrast to the usual formulation, however, the hypothetical costs of the proposed policies were formulated as a percentage change in taxes. The benefit of this formulation relative to the usual absolute money amounts is that the credibility of the (hypothetical) costs for respondents does not depend on respondent income. Furthermore, the formulation allowed us to solicit party positions on the proposed policies. Six out of eight contacted parties provided their positions. We then conducted a split-sample mail survey where we included a table of the party positions with a subsample of the questionnaires. We report six main experimental results. (1) The response rate of the survey was unaffected by the party positions. (2) The proportion of no-choice answers was decreased by forty percent relative to the control. (3) The party information significantly affected the choices directly and in interaction with respondents' general attitudes towards public spending for nature and landscape conservation and thus affected the way how individuals mapped from general attitudes to preferences for specific policies. (4) The information interacted with educational level in only eight out of forty choice sets, suggesting that even the more educated relied on simplified heuristics. (5) Respondents who knew the party positions were more sensitive to the tax attribute. (6) For respondents with medium and higher tax bills, the resulting willingness-to-pay estimates were decreased by a factor of two to ten relative to the control. These findings suggest that the party information helped the respondents to articulate more consistent preferences than in the treatment without the party information.     

One model fits all? — On the moderating role of emotional engagement and confusion in the elicitation of preferences for climate change adaptation policies

Environmental economic and psychological studies often implicitly assume homogeneity of respondents' decision strategies in questionnaire-based surveys. However, social psychology and behavioural research suggest that there is a wide variety of approaches that individuals use to make such choices.We explore this heterogeneity against the backdrop of so-called ‘dual process models’, analysing participants' responses in a survey of public beliefs about and preferences for climate change adaptation policies. We find that the postulate of two different types of decision-making, the systematic-analytical and the heuristic-holistic, does indeed help us to understand patterns in respondent behaviour that are, in turn, underpinned by respondents' motivation and ability to process information. Participants who were motivated and able to process the information provided were more likely to express preferences in line with their beliefs about adaptation policies, whereas those less motivated and more confused were more likely to use generalised rules-of-thumb that were not specific to the policy issue at hand. Depending on the theoretical framework of a study, such heterogeneity in response consistency and use of generic rules-of-thumb might have implications for the usefulness of survey outcomes. We discuss the implications of our findings, and draw conclusions for survey-based environmental research.     

Patience and time consistency in collective decisions

We present experimental evidence regarding individual and group decisions over time. Static and longitudinal methods are combined to test four conditions on time preferences: impatience, stationarity, age independence, and dynamic consistency. Decision making in groups should favor coordination via communication about voting intentions. We find that individuals are neither patient nor consistent, that groups are both patient and highly consistent, and that information exchange between participants helps groups converge to stable decisions. Finally we provide additional evidence showing that our results are driven by the specific role of groups and not by either repeated choices or individual preferences when choosing for other subjects.     

The informational effects of competition and collusion in legislative politics

We use a mechanism design approach to study the organization of interest groups in an informational model of lobbying. Interest groups influence the legislature only by communicating private information on their preferences and not by means of monetary transfers. Interest groups have private information on their ideal points in a one-dimensional policy space and may either compete or adopt more collusive behaviors. Optimal policies result from a trade-off between imposing rules which are non-responsive to the groups' preferences and flexibility that pleases groups better. Within a strong coalition, interest groups credibly share information which facilitates communication of their joint interests, helps screening by the legislature and induces flexible policies responsive to the groups' joint interests (an informativeness effect). Competing interest groups better transmit information on their individual preferences (a screening effect). The socially and privately optimal organization of lobbying favors competition between groups only when their preferences are not too congruent with those of the legislature. With more congruence, a strong coalition is preferred. Finally, within a weak coalition, interest groups must design incentive compatible collusive mechanisms to share information. Such weak coalitions are always inefficient.     

Choke Price Bias in Choice Experiments

This paper reports on the results from a split sample choice experiment, where the effect of changing the maximum level of the cost attribute is investigated. The hypothesis was that changing the maximum price level would either give rise to an income effect or have no effect on consumers’ preferences. This was tested in the framework of a valuation study of different quality characteristics of minced pork. The data was analysed using a mixed logit error component model, which accounts for correlation in the unobserved part of the utility. Results suggest that the size of the maximum price level does matter, and that changing the maximum price level has a statistically significant effect on both the general preferences structure and the WTP estimates. Hence, researchers should be very careful when defining not only the range of the price attribute but also the maximum level of the price attribute.     

COGNITIVE EMPATHY IN CONFLICT SITUATIONS

Two individuals are involved in a conflict situation in which preferences are ex ante uncertain. Although they eventually learn their own preferences, they have to pay a small cost if they want to secretly learn their opponent's preferences. We show that there is an interval with an upper bound less than 1 and lower bound greater than zero such that, for sufficiently small positive costs of information acquisition, in any Bayesian Nash equilibrium of the resulting game of incomplete information the probability of acquiring information about the opponent's preferences is within this interval.     

Testing the Influence of Substitute Sites in Nature Valuation by Using Spatial Discounting Factors

This paper investigates the effect of nearby nature substitute sites on preferences for nature restoration. Contrary to prior studies, we use a respondent-centric approach to control for substitute sites. We assess each respondent-specific spatial context by computing densities of nature substitute sites within various ranges from each respondent’s home. This approach considers the use and non-use values of nature together. Data from three similar discrete choice experiments carried out in Flanders (Belgium) are compared. Different spatial discounting factors are tested to explore how the substitution effect behaves with regard to distance. Latent class analyses are performed to account for preference heterogeneity among respondents. We observe divergent behaviours across groups of respondents. The “distance-to-substitutes” affects how respondents gauge substitute sites. We find a significant influence of the squared average buffer distance but this effect varies in sign across case studies and classes of respondents. Our results demonstrate that individual-specific GIS data can significantly improve the representation of the spatial context and the transferability of value functions. However, the roles played by preference heterogeneity and nature perception on respondents’ capacity to value nature still deserves further attention in future research.     

Interview Effects in an Environmental Valuation Telephone Survey

Because of the lack of markets for many environmental services, economists have turned to valuation surveys to estimate the value of these services. However, lack of market experience may cause respondents in valuation surveys to be more prone to interview effects than they would be with other opinion surveys. Without reference to market price or experience, respondents are less likely to have well-defined preferences, which may cause respondents to be more easily influenced by the interview process and characteristics of the interviewer. In this paper, we investigate interview effects in a random digit dial telephone survey of recycling valuation and behavior. Following previous research in both psychology and survey methodology, we test the direct effects of interviewer gender and race, as well as the interaction effects between interviewer and respondent characteristics. Using data from 130 interviewers and 1,786 interviewees, we apply a hierarchical regression model that accounts for the clustering of interviews and controls for a variety of other confounding variables. We confirm the existence of both direct and conditional interviewer effects. Respondents state higher willingness to pay when interviewed by white or female interviewers than by non-white or male interviewers. There were also significant interaction effects between interviewer and respondent characteristics. The directions of the interviewer effects are consistent with previous survey research and social psychology theories. We also identify some non-traditional interview process factors that have an influence on survey responses.     

A comparison of responses to single and repeated discrete choice questions

According to neoclassical economic theory, a stated preference elicitation format comprising a single binary choice between the status quo and one alternative is incentive compatible under certain conditions. Formats typically used in choice experiments comprising a sequence of discrete choice questions do not hold this property. In this paper, the effect on stated preferences of expanding the number of binary choice tasks per respondent from one to four is tested using a split sample treatment in an attribute-based survey relating to the undergrounding of overhead low-voltage electricity and telecommunications wires. We find evidence to suggest that presenting multiple choice tasks per respondent decreases estimates of expected willingness to pay. Preferences stated in the first of a sequence of choice tasks are not significantly different from those stated in the incentive compatible single binary choice task, but, in subsequent choice tasks, responses are influenced by cost levels observed in past questions. Three behavioural explanations can be advanced – weak strategic misrepresentation, reference point revision, and asymmetric value learning. The evidence is contrary to the standard assumption of truthful response with stable preferences.     

Risk-return preferences in the pension domain: Are people able to choose?

This paper presents new evidence for the Netherlands on pension preferences and investor autonomy in the pension domain using a representative survey of about 1000 Dutch citizens. Our main conclusions are the following. Risk aversion is domain dependent and highest in the pension domain. The vast majority of respondents favours the currently dominant defined benefit pension system. If offered a combined defined benefit/defined contribution system, the majority would like to have a guaranteed pension income of at least 70% of their net labour income. Self-assessed risk tolerance and financial expertise are important individual explanatory variables of pension attitudes. The average respondent considers himself financially unsophisticated and is reluctant to take control of retirement savings investment, even when offered the possibility to increase expertise. Respondents who have chosen a relatively safe portfolio tend to switch to the riskier median portfolio when they are shown future income streams. This again suggests that many respondents currently lack the skills to have investor autonomy over investment for retirement.     

A new approach to the demand for public goods

The individual demand for public goods is measured by a new survey research instrument which permits respondents to make hypothetical expenditure and tax recommendations with moveable penny coupons. Because each respondent faces an identical coupon budget constraint, it may be expected that observed expenditure and tax recommendations represent individual maximum utility. The instrument was applied to a random sample of 1000 residents of North Carolina. Statistical analysis of the resultant data indicates significant socio-economic differences in the preferences for particular spending and tax categories.