The preference for sustainable coffee and a new approach for dealing with hypothetical bias

Abstract

There is a large literature on the effects of sustainability labels. However, much of this research is based on stated preference methods, thus hypothetical bias must be dealt with. Hypothetical bias can be defined as the difference between stated, hypothetical behavior and actual behavior in the real market. We conducted an online choice experiment with coffees, of which some were labeled as water saving. To mitigate hypothetical bias, we used “cheap talk”. We find a statistically significant effect of a 6% higher choice probability and €1.30 higher willingness to pay for labeled coffee. However, we also implemented the water label in a real online shop, and we do not find this effect. Assuming that hypothetical bias especially affects individuals who are more concerned about their appearance and who lack self-control, we augment our baseline models with interaction terms, estimating separate coefficients for respondents who differ in their concern for appearance and strength of self-control. This approach reveals the hypothetical bias and it controls it away. We propose that our interaction terms are a simple robustness check that complements existing approaches to deal with hypothetical bias.