TITLE:
Hypothetical Bias for Private Goods: Does Cheap Talk Make a Difference?
AUTHORS:
Maurice Doyon, Laure Saulais, Bernard Ruffieux, Denise Bweli
KEYWORDS:
Experimental Economics, Willingness-to-Pay, Cheap Talk, Hypothetical Bias
JOURNAL NAME:
Theoretical Economics Letters,
Vol.5 No.6,
December
29,
2015
ABSTRACT: Economists
and market researchers often need to accurately gauge consumers’
willingness-to-pay for private goods. The experimental literature has identified
a problem of hypothetical bias when using stated preferences techniques, such
as open-ended questions. It has been suggested that using a cheap talk script
has the potential to resolve this bias. Yet, few empirical studies on the efficiency
of cheap talk for private goods exist. This study uses a between-subjects
experimental design to compare consumers’ willingness-to-pay for DHA-enriched
milk using three elicitation methods: 1) Hypothetical open-ended stated
preference question, without monetary consequence for the respondent; 2) Idem
to the first with the addition of a cheap talk script; and 3) A Vickrey auction
with real monetary consequences. In this experiment subjects have the choice to
participate, or not, at each period. Our results indicate a significant
hypothetical bias. While the use of cheap talk has no impact on this bias, it
does however increase the level of participation to the market.