IA Understanding the Effects of Choice Set Complexity in Stated Preference Methods

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Economists employ stated preference methods to measure the use and non-use value that consumers derive from a variety of environmental programs. Recently, economists and federal agencies have begun to explore the feasibility of generalizing stated preference methods by moving from the contingent valuation method to so-called conjoint methods. The contingent valuation method presents consumers with only one alternative, for which the price varies, while conjoint methods present consumers with a choice set that contains several alternatives that each vary along a number of attributes. Proponents of conjoint analysis argue that this allows a more complete characterization of the benefits derived from the project's attributes, and may do so with greater statistical efficiency and lower financial costs than traditional stated preference methods. However, several prominent economists have expressed concern that the highly complex choice sets used in conjoint analysis may overwhelm the cognitive capacities of consumers and thus lead to unreliable estimates of use and non-use value. This debate continues because there is very little research about the effects of choice set complexity on estimates of economic benefits. As a result, public agencies such as EPA and NOAA are still uncertain as to the relative merits of conjoint methods versus other non-market valuation techniques. This uncertainty impedes the acquisition and use of information on economic benefits in judicial, regulatory and public investment decisions. We step into this debate with some rigorous and systematic research on the core issue: How does the complexity of a choice set affect the way in which a consumer reveals his value for environmental amenities? To answer this question, we vary the complexity of the choice set in an elaborate stated preference experiment and then evaluate choice outcomes with regard to several dimensions of the experiment. First, how does choice inconsistency (i.e., the propensity to make mistakes) vary with complexity? Second, do consumers' information processing strategies vary with the level of choice set complexity in a way that significantly changes their choices (and thus economists'estimates of benefits)? Third, how do the personal characteristics of consumers interact with choice set complexity to affect choice consistency and information processing strategies? Fourth, how are consumers' subjective assessments of choice set complexity related to the measures of complexity that we, as researchers, can objectively quantify? Answering these substantive questions will enable us to identify the limits of current practice and to extend the frontiers of research on stated preference methods. At the center of our analysis is a behavioral model of choice that integrates several strands of existing literature in the fields of psychology, economics and marketing. From this model, we develop a set of hypotheses that we can test statistically in order to provide answers to the above questions. By testing these hypotheses, we will develop methods to identify and control for choice set complexity in stated preference applications. We believe these methods will become standard tools for future research in this area. In this proposal, we seek funding only for the analysts of a newly created data set. As part of a recently completed Harvard University research project, the principal investigator designed and implemented conjoint experiments that were peer-reviewed by highly respected experts in the fields of economics and marketing research. However, a strategic decision was made to invest this original research support in obtaining the highest possible quality of data and to answer only the requisite policy questions in the initial analyses. We have now exhausted this original funding and are seeking additional support to address the important methodological issues that can be examined using these innovative stated preference survey experiments.