There is growing interest in establishing the extent of differences in willingness to pay (WTP) for attributes, such as travel time savings, that are derived from real market settings and hypothetical (to varying degrees)settings. Non-experiment external validity tests involving observation ofchoice activity in a natural environment, where the individuals do not know they are in an experiment, are rare. In contrast the majority of tests are a test of external validity between hypothetical and actual experiments. Deviation from real market evidence is referred to in the literature broadly as hypothetical bias. The challenge is to identify such bias, and tothe extent to which it exists, establishing possible ways to minimise it.This paper reviews the efforts to date to identify and calibrate WTP derived from one or more methods that involve assessment of hypothetical settings, be they (i) contingent valuation methods, (ii) choice experiments involving trading attributes between multiple alternatives, with or withoutreferencing, or (iii) methods involving salient or non-salient incentiveslinked to actual behaviour. Despite progress in identifying possible contributions to differences in marginal WTP, there is no solid evidence, although plenty of speculation, to explain the differences between all manner of hypothetical experiments and non-experimental evidence. The absence of non-experimental evidence from natural field experiments remains a major barrier to confirmation of under or over-estimation. We find, however, thatthe role of referencing of an experiment relative to a real experience (including evidence from revealed preference (RP) studies), in the design ofchoice experiments, appears to offer promise in the derivation of estimates of WTP that have a meaningful link to real market activity, closing thegap between RP and SC WTP outputs. (A) Reprinted with permission from Elsevier.
Abstract