A comparison of responses to single and repeated discrete choice questions

McNair, Ben J. and Bennett, Jeff and Hensher, David A. (2010): A comparison of responses to single and repeated discrete choice questions.

Abstract

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 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 cost-driven value learning. The evidence is contrary to the standard assumption of truthful response with stable preferences.

• Item Type: MPRA Paper
• Language: English
• Keywords: Choice experiment; willingness-to-pay; incentive compatibility; order effects; undergrounding
• Subjects: L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L94 - Electric Utilities; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q51 - Valuation of Environmental Effects

References

Alfnes F. and Steine G., 2005. None-of-these bias in hypothetical choice experiments. Discussion paper DP-06/05, Department of Economics and Resources Management, Norwegian University of Life Sciences, Aas.

Arrow K., Solow R., Portney P.R., Leamer E.E., Radner R. and Schuman H., 1993. Report of the NOAA panel on contingent valuation. Federal Register 58, 4601-4614.

Baron D. and Myerson R., 1982. Regulating a monopolist with unknown costs. Econometrica 50, 911-930.

Bateman I.J., Burgess D., Hutchinson W.G. and Matthews D.I., 2008a. Learning design contingent valuation (LDCV): NOAA guidelines, preference learning and coherent arbitrariness. Journal of Environmental Economics and Management 55, 127-141.

Bateman I.J., Carson R.T., Day B., Dupont D., Louviere J.J., Morimoto S., Scarpa R. et al, 2008b. Choice set awareness and ordering effects in discrete choice experiments. CSERGE Working Paper EDM 08-01.

Beenstock M., Goldin E. and Haitovsky Y., 1998. Response bias in conjoint analysis of power outages. Energy Economics 20, 135-156.

Bennett J. and Blamey R., 2001. The Choice Modeling Approach to Environmental Valuation. Edward Elgar, Cheltenham, UK.

Boyle K., Morrison M. and Taylor L., 2004. Why value estimates generated using choice modelling exceed contingent valuation: further experimental evidence. Paper presented at Australian Agricultural and Resource Economics Society Conference, Melbourne, 11-13 February.

Boyle K.J., Bishop R.C. and Welsh M.P., 1985. Starting Point Bias in Contingent Valuation Bidding Games. Land Economics 61, 188-194.

Bradley M. and Daly A., 1994. Use of the logit scaling approach to test for rank-order and fatigue effects in stated preference data. Transportation 21, 167-184.

Braga J. and Starmer C., 2005. Preference anomolies, preference elicitation and the discovered preference hypothesis. Environmental and Resource Economics 32, 55-89.

Cameron T.A., Poe G.L., Ethier R.G. and Schulze W.D., 2002. Alternative non-market value-elicitation methods: Are the underlying preferences the same? Journal of Environmental Economics and Management 44, 391-425.

Cameron T.A. and Quiggin J., 1994. Estimation using contingent valuation data from a "dichotomous choice with follow-up" questionnaire. Journal of Environmental Economics and Management 27, 218-234.

Carlsson F. and Martinsson P., 2001. Do hypothetical and actual marginal willingness to pay differ in choice experiments? Journal of Environmental Economics and Management 41, 179-192.

____, 2008. Does it matter when a power outage occurs? A choice experiment study on the WTP to avoid power outages. Energy Economics 30, 1232-1245.

Carson K.S., Chilton S.M. and Hutchinson W.G., 2009. Necessary conditions for demand revelation in double referenda. Journal of Environmental Economics and Management 57, 219-225.

Carson R.T. and Groves T., 2007. Incentive and informational properties of preference questions. Environmental and Resource Economics 37, 181-210.

Carson R.T., Groves T. and List J., 2006. Probabilistic influence and supplemental benefits: a field test of the two key assumptions behind using stated preferences. unpublished manuscript.

Carson R.T., Groves T. and Machina M.J., 1997. Stated preference questions: context and optimal response. Paper presented at National science foundation preference elicitation symposium, University of California, Berkeley.

Caussade S., Ortuzar J.d.D., Rizzi L.I. and Hensher D.A., 2005. Assessing the influence of design dimensions on stated choice experiment estimates. Transportation Research Part B 39, 621-640.

Day B. and Pinto J.L., 2010. Ordering anomalies in choice experiments. Journal of Environmental Economics and Management doi:10.1016/j.jeem.2010.03.001.

DCITA, 1998. Putting cables underground. A report for the Minister for Communications, Information Technology and the Arts, November.

DeShazo J.R., 2002. Designing transactions without framing effects in iterative question formats. Journal of Environmental Economics and Management 43, 360-385.

Farquharson R., 1969. Theory of voting. Yale University Press, New Haven.

Flachaire E. and Hollard G., 2007. Starting point bias and respondent uncertainty in dichotomous choice contingent valuation surveys. Resource and Energy Economics 29, 183-194.

Fosgerau M. and Nielsen S.F., 2006. Deconvoluting preferences and errors: a semi-nonparametric model for binomial panel data. Paper presented at Econometric Society European Meeting, Vienna, Austria, August 24-28.

Green J. and Laffont J.J., 1979. Incentives in public decision making. North-Holland, Amsterdam.

Green J.R. and Laffont J.J., 1978. A sampling approach to the free rider problem, In: Sandmo A (ed), Essays in public economics. Lexington Books, Lexington, MA.

Hanemann W.M., Loomis J. and Kanninen B., 1991. Statistical efficiency of double bounded dichotomous choice contingent valuation. American Journal of Agricultural Economics 73, 1255-1263.

Hensher D.A., 2009. Hypothetical bias, choice experiments and willingness to pay. In Transportation Research Part B.

Hensher D.A. and Greene W.H., 2009. Valuation of travel time savings in WTP and preference space in the presence of taste and scale heterogeneity. Journal of Transport Economics and Policy (in press).

Hensher D.A., Rose J.M. and Greene W.H., 2005. Applied Choice Analysis: A Primer. Cambridge University Press, Cambridge.

Hensher D.A. and Truong T.P., 1985. Valuation of Travel Time Savings: A Direct Experimental Approach. Journal of Transport Economics and Policy 19, 237-261.

Herriges J.A. and Shogren J.F., 1996. Starting point bias in dichotomous choice valuation with follow-up questioning. Journal of Environmental Economics and Management 30, 112-131.

Holmes T. and Boyle K.J., 2005. Dynamic learning and context-dependence in sequential, attribute-based stated-preference valuation questions. Land Economics 81, 114-126.

Hurwicz L., 1972. On informationally decentralized systems, In: McGuire C B and Radner R (ed), Decision and organisation. North-Holland, Amsterdam.

InfraSource Technology, 2007. Undergrounding assessment phase 1 final report. A report for Florida Electric Utilities, February.

IPART, 2002. Electricity Undergrounding in New South Wales. A report for the Minister for Energy, May.

Kahneman D. and Tversky A., 1979. Prospect theory: An analysis of decisions under risk. Econometrica 47, 263-291.

Ladenburg J. and Olsen S.B., 2008. Gender-specific starting point bias in choice experiments: Evidence from an empirical study. Journal of Environmental Economics and Management 56, 275-285.

Loeb M. and Magat W., 1979. A decentralized method for utility regulation. Journal of Law and Economics 22, 399-404.

Louviere J.J. and Woodworth G., 1983. Design and analysis of simulated consumer choice or allocation experiments: an approach based on aggregate data. Journal of Marketing Research 20, 350-367.

Lusk J. and Schroeder T., 2004. Are choice experiments incentive compatible? A test with quality differentiated beef steaks. American Journal of Agricultural Economics 86, 467-482.

Masieroa L. and Hensher D.A., 2010. Shift of reference point and implications on behavioral reaction to gains and losses. unpublished manuscript.

McFadden D., 1980. Econometric models for probabilistic choice among products. Journal of Business 53, 13-29.

McFadden D. and Leonard G., 1995. Issues in the contingent valuation of environmental goods: Methodologies for data collection and analysis, In: Hausman J A (ed), Contingent Valuation: A Critical Assessment. North-Holland, Amsterdam.

Mirrlees J., 1971. An exploration in the theory of optimal income taxation. Review of Economic Studies 38, 175-208.

NERA Economic Consulting and ACNielsen, 2003. Willingness to pay research study. A report for ACTEW Corporation and ActewAGL, September.

Plott C.R., 1996. Rational individual behavior in markets and social choice processes: the discovered preference hypothesis, In: Arrow K, Colombatto E, Perleman M and

Schmidt C (ed), Rational foundations of economic behavior. Macmillan, London.

Racevskis L. and Lupi F., 2008. Incentive Compatibility in an Attribute-Based Referendum Model. Paper presented at American Agricultural Economics Association Annual Meeting, Orlando, FL, 27-29 July.

Rose J.M., Hess S., Bliemer M.C.J. and Daly A., 2009. The impact of varying the number of repeated choice observations on the mixed multinomial logit model. Paper presented at European Transport Conference, Leeuwenhorst, The Netherlands, 5-7 October.

Samuelson P.A., 1954. The pure theory of public expenditure. Review of Economics and Statistics 36, 387-389.

Scarpa R. and Rose J., 2008. Design Efficiency for Non-Market Valuation with Choice Modelling: How to Measure it, What to Report and Why. Australian Journal of Agricultural and Resource Economics 52, 253-282.

Scheufele G. and Bennett J., 2010a. Effects of alternative elicitation formats in discrete choice experiments. Paper presented at 54th annual Australian Agricultural and Resource Economics Society conference, Adelaide, South Australia, 9-12 February.

____, 2010b. Ordering effects and response strategies in discrete choice experiments. Paper presented at World Congress of Environmental and Resource Economists, Montreal, Canada, 28 June - 2 July.

Schleifer A., 1985. A theory of yardstick competition. Rand Journal of Economics 16, 319-327.

Small K.A. and Rosen H.S., 1981. Applied Welfare Economics with Discrete Choice Models. Econometrica 49, 105-130.

Spence M.A., 1975. Monopoly, quality, and regulation. The Bell Journal of Economics 6, 417-429.