Stated Preference
2015
Stated
• Means you ask somebody about
something rather than watch them do
something.
• You can lie.
Passive use
• I love wolves existence but I don’t do
anything at all with them
– I don’t contribute to wolf organizations
– I don’t go to Yellowstone to see them
– I just love them while sitting alone in my
armchair
• Travel cost gives a value for me of zero for
wolves.
Option
• One day I might want to go see wolves in
Yellowstone.
• I am willing to pay for the option to see
them.
• An option is the right and not the
obligation.
– A theatre ticket is the right to see the play, but
the author will not come with a gun to force
you to see it.
Money
• First talk to them about money and how it
could be used for other projects.
Background
• Give the subjects some context for the
project that will be proposed.
• Then tell respondent about wolves and
their role in ecosystem.
– Show them pictures of wolves, yellowstone,
and excess herbivory
So tell about a project
• Describe a specific project
– Allow them to run free in Yellowstone
– Need money to pay for dead sheep
And a specific payment method
• A surcharge on sales tax for meat
• An income tax surcharge
• A surcharge on sales tax for environment
texts
Reasons to Vote for and
Against
• Remind the subject that there are good
reasons to vote for or against the project.
• Trying not to convey the attitude that all
good people are for a meat tax.
• (A good reason to have disinterested
people, not the investigator, ask the
questions.)
The Question
• Open ended:
– How much would you be willing to pay to
make yellowstone a wolf haven?
• Referendum:
– Would vote for a surcharge on your income
tax of $X to support the wolf indemnification
program so that Yellowstone can be a wolf
haven?
• Choose x to be different numbers for different
people to trace a demand curve.
The debrief
• Ask about
– Income
– Education
– Family status
– Etc
• Use to show how characteristics affect choice.
– Would wonder about survey if wolves were an
inferior good and men loved them more than
women
Lies
• You want more wolves in Yellowstone and
are truly willing to pay $50.
• You know that the WTP measure
computed from the survey will determine
the number of wolves.
• What number do you give as an answer to
how much will you pay?
• Do you say yes to the referendum at $60?
How to analyze discrete choice
• Yes or No votes to save the wolves
• Take bart, bus or drive
• etc.
Cumulative and Density: What
percent below?
Cumulative
Distribution
Function, CDF(e)
is probability that
e <= z.
Probability distribution
function
Is shown. Area under
PDF is CDF
z
Random Utility and Percent Yes
• e is a draw from the normal PDF. Every
individual has a different draw. Every
individual has the same .
• Uw=  + e
• Unw= 0
• Say yes to wolf project when
– Uw=  + e >Unw= 0
– What percent of individuals say yes?
CDF and Percent yes
• Say yes to wolf project when
– Uw=  + e >Unw= 0
– What percent of individuals say yes?
• What percent of the time is e > - 
– 1- percent of time e < -  = CDF(- )
– Go back to CDF diagram and talk this through
for = 1, = -.5
– Bigger  more people say yes, higher percent
yes.
Random Utility model
• U=aE+bI
– E # of wolves
– I Income a and b are parameters
• Two cases, with and without improvement
• U1 = aE1 + b I
• U2 = aE2 + b (I-P)
– P is payment
Pick the best
• Says yes to referendum if
– U2 > U1
– a(E2-E1) –bP > 0
• If people are a little different
– ei is the little bit of difference in wolf liking
– U2 = aE2 + b(I-P) +ei
– U2 > U1 means
•
a(E2-E1) –bP + ei > 0
Who says yes
– a(E2-E1) –bP + ei > 0
– All those who have e’s
• ei > -a (E2 – E1) + bP
• So for each P we will have some fraction
that says Yes and some that says NO.
• We choose a and b to make the predicted
fractions as close as possible to the actual
fractions.
Wolf value
• Now we have the parameters a and b.
• U=aE+bI
– So 1 wolf increase U by a
– $1 increase U by b
– U constant is 1 wolf up and $a/b down
– Value of a wolf is a/b!
Conjoint Analysis
• Two or more variants on the project.
– Garden with 30% native plants
– Garden with 100% native plants
– Garden with no native plants.
• Attributes
– Intensity of color display
– Water use
– Cost
Alternatives have different
attributes
• No native
– Intense color, low cost, high water
• 20%
– intense color, high cost, medium water
• All native
– Dull, low cost, low water
Utility depends on attribs
• Ui= a * colori + b * costi + c * wateri
– Where i = all native, non-native, 20% native
– Utility of the alternative depends upon the
quantity of the attributes and their valuation,
a, b,c.
• We ask people to choose an alternative
and use RUM to find the a, b, c that get us
predictions close to the fraction that
actually chose the alternatives
Advantage
• Learn the value of the underlying
attributes. That is a,b,c.
– Does the saved water drive peoples use of
native landscape?
– Are people color freaks?
– Is it all about the pocketbook?
Criticism of SP in general
• Background.
– The Exxon Valdez spawned a huge litigation
battle. Exxon realized that contingent
valuation had the potential to make every spill
a company threatening situation. Arm chair
environmentalists would have to be paid.
– Economics profession was heavily involved in
either defending or attacking.
– Michael Hanneman and Richard Carson were
on the side of making the companies pay.
Hypothetical bias
• You don’t really have to pay with a CV
study.
– There are studies where both CV and
revealed preference have been done and CV
doesn’t generally overstate the revealed
preference answer.
– e.g. Do a cv study on the value of hunting
licenses. Then send the licenses out with a
check and say return one.
Scope
• If you would pay $20 to save one lake,
would you pay $20,000 to save 1,000
lakes?
• $26 to clean up local water and $68 to
clean up all water?
• Are these internally inconsistent?
• Probably not. Willing to pay less for each
additional lake, WTP more for local than
far away.
Experimental
• Pay people to taste SOA. It is bitter.
• Give people $10. If a majority says yes,
every one of them gives up $5 and gets a
piece of sports memorabilia. Compare to
a CV experiment, hypothetical.
• External Validity —do these experiments
tell us anything about the world at large or
only students and sports memorabilia
fans?
A Pitch for Marketing
• I have a new pizza. Should I be marketing
it which costs $25 million or should I forget
it?
• Marketing uses techniques like those
above—surveys and experiments to learn
about demand.
• Unlike our environment business, they
learn what true demand is when they put
the pizza on the market.