Chapter 19 Experimental Methods and Valuation

Abstract

This chapter explores how economists use experimental methods to understand better the behavioral underpinnings of environmental valuation. Economic experiments, in the lab or field, are an attractive tool to address intricate incentive and contextual questions that arise in assessing values through direct statements of preferences. By combining empirical observation with theoretical insight, researchers use the experimental method and mindset to help explain how economic and social contexts matter to valuation. Herein we consider three themes in applying the experimental method to valuation – rational choice theory and stated values, direct value elicitation in the field and lab, and “testbedding” survey designs prior to field application. First, experimental tests of rational valuation are discussed. This lab work examines whether respondents make choices and state values in a manner consistent with standard rational choice theory. The circumstances of rational valuation are illustrated by the malleability of two classic anomalies – the WTP–WTA divergence and the preference reversal phenomenon. Second, direct experimental methods to measure actual values for public and private goods are examined. These experiments ask people to buy and sell actual goods to elicit real values, in which researchers test how alternative exchange institutions affect these values. Third, we survey testbed experiments designed to identify potential incentive problems caused by hypothetical valuation questions. Four topics are discussed: testing for hypothetical bias, calibrating real and hypothetical values, examining surrogate values (or scoping) for specific environmental preferences, and evaluating the incentive (in)compatibility of alternative elicitation mechanisms.