Nicolas Jacquemet, Paris School of Economics and University Paris I Panthéon–Sorbonne. Centre d’Economie de la Sorbonne, 106 Bd. de l’Hopital, 75013 Paris, France (Nicolas.Jacquemet@univ-paris1.fr). Robert-Vincent Joule, University of Provence, Laboratoire de Psychologie Sociale. 29, avenue Robert-Schuman 13621 Aix-en-Provence cedex 1, France (email@example.com). Stéphane Luchini, GREQAM-CNRS, Centre de la Vieille Charité, 13236 Marseille Cedex 02, France (firstname.lastname@example.org). Jason F. Shogren, Department of Economics and Finance, University of Wyoming, Laramie, WY 82071-3985, USA (JRamses@uwyo.edu).
Do People Always Pay Less Than They Say? Testbed Laboratory Experiments with IV and HG Values
Article first published online: 26 SEP 2011
© 2011 Wiley Periodicals, Inc.
Journal of Public Economic Theory
Volume 13, Issue 5, pages 857–882, October 2011
How to Cite
JACQUEMET, N., JOULE, R.-V., LUCHINI, S. and SHOGREN, J. F. (2011), Do People Always Pay Less Than They Say? Testbed Laboratory Experiments with IV and HG Values. Journal of Public Economic Theory, 13: 857–882. doi: 10.1111/j.1467-9779.2011.01522.x
Part of this paper previously circulated as “Do French Students Really Bid Sincerely?”, GREQAM WP 2008-12. We wish to thank Romain Zeiliger and Maxim Frolov for their assistance in developing the software. Comments and suggestions from all participants to the PET workshop “Public Economics: Theoretical and Experimental Approaches” as well as two anonymous referees were greatly appreciated. We are grateful to the GATE laboratory for welcoming us, in particular Jean-Louis Rullière and Marie-Claire Villeval. We gratefully acknowledge financial supports from the French Research Ministry (no. 4-5-666; ACI Santé et Environnement) and the Risk Foundation (Health, Risk and Insurance Chair, Allianz).
- Issue published online: 26 SEP 2011
- Article first published online: 26 SEP 2011
- Received November 17, 2009; Accepted July 29, 2010.
Hypothetical bias is a long-standing issue in stated preference and contingent valuation studies—people tend to overstate their preferences when they do not experience the real monetary consequences of their decision. This view, however, has been challenged by recent evidence based on the elicitation of induced values (IV) in the lab and homegrown (HG) demand function from different countries. This paper uses an experimental design to assess the extent and relevance of hypothetical bias in demand elicitation exercises for both induced (IV) and homegrown (HG) values. For testbed purpose, we use a classic second-price auction to elicit preferences. Comparing the demand curve we elicit in both, hypothetical bias unambiguously (i) vanishes in an IV, private good context and (ii) persists in HG values elicitation context. This suggests hypothetical bias in preference elicitation appears to be driven by “preference formation” rather than “preference elicitation.” In addition, companion treatments highlight two sources of the discrepancy observed in the HG setting: the hypothetical context leads bidders to underestimate the constraints imposed by their budget limitations, whereas the real context creates pressure leading them to bid “zero” to opt out from the elicitation mechanism. As a result, there is a need for a demand elicitation procedure that helps subjects take the valuation exercise sincerely, but without putting extra pressure on them.