Hypothetical Bias Reconsidered: Payment and Provision Uncertainties in a Threshold Provision Mechanism

We extend research on the consequentiality of stated preference choices to a threshold provision mechanism for public goods. We develop a simple theoretical model of option price to analyze how option price varies with payment and provision uncertainty. We explore whether threshold provision contributions are similarly influenced by payment and provision uncertainty using an induced value contribution experiment. Results suggest that: (1) the probability of payment has a negative effect on contributions; (2) the probability of provision has a positive effect on contributions. We offer subjective beliefs regarding payment and provision as a plausible systematic explanation for hypothetical bias.