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Bounded rationality in contingent valuation: Empirical evidence using cognitive psychology

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  • Frör, Oliver

Abstract

Survey based valuation techniques like the Contingent Valuation Method (CVM) rely particularly on the premise of respondents' rationality when answering willingness to pay (WTP) questions. Results of CVM surveys have repeatedly put this fundamental assumption into question. This study adopts a more realistic view of rationality accounting for respondents' limited capacities to process information. Based on cognitive psychology a technique to detect and analyze the bounds of rationality inherent in WTP statements is developed. Using an empirical example, the influence of bounded rationality on the validity of CVM results is analyzed. It is shown that individual differences in information processing play a major role for the validity of CVM responses. The results allow new insights into response behavior in dichotomous-choice versus payment card elicitation formats. From the results of this study recommendations for future survey designs taking into account respondents' different information processing modes are developed.

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  • Frör, Oliver, 2008. "Bounded rationality in contingent valuation: Empirical evidence using cognitive psychology," Ecological Economics, Elsevier, vol. 68(1-2), pages 570-581, December.
    • Handle: RePEc:eee:ecolec:v:68:y:2008:i:1-2:p:570-581
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    2. Menzel, Susanne, 2013. "Are emotions to blame? — The impact of non-analytical information processing on decision-making and implications for fostering sustainability," Ecological Economics, Elsevier, vol. 96(C), pages 71-78.
    3. León, Carmelo J. & Araña, Jorge E. & Hanemann, W. Michael & Riera, Pere, 2014. "Heterogeneity and emotions in the valuation of non-use damages caused by oil spills," Ecological Economics, Elsevier, vol. 97(C), pages 129-139.
    4. Remoundou, Kyriaki & Kountouris, Yiannis & Koundouri, Phoebe, 2010. "Does institutional context affect preference formation? Evidence from a stated preference valuation study," MPRA Paper 122495, University Library of Munich, Germany.
    5. Tomasz Potocki, 2012. "Cumulative Prospect Theory as a model of economic rationality," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 31.

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