Using ex ante approaches to obtain credible signals for value in contingent markets: evidence from the field.

Given the potential problems in designing "consequential" stated preference surveys, we also highlight our results regarding the effectiveness of the "cheap talk" design. Our experimental evidence does support the cheap talk design, but it does not appear as strong as the consequential design (with an objective probability of p = 0.50). However, in actual applications of stated preference methods cheap talk provides an important alternative to the consequential design in cases where realism is difficult to attain, or in cases where the variability in perceptions of realism tend to be high. We note that such conditions could be quite common in the field, and thus cheap talk remains a viable design option.

Important extensions of this research include implementing the consequential design with different probability levels, making allowances for subjective or uncertain probabilities, and incorporating goods with a nonuse component. Our field data make use of subjects that are familiar with the class of good being valued (presumed since they have self-selected into the market for sports memorabilia), and arguably the good conveys primarily use value. Since part of the value of stated preference surveys stems from their purported ability to measure nonuse value, it is of interest to know whether referenda for potentially unfamiliar goods with primarily nonuse value will produce comparable results to those of this paper. This is a topic for future research.

[Received May 2005; accepted May 2006.]

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(1) At the same time, economists have been exploring ex post alternatives to addressing hypothetical bias, which involve statistical calibration of responses. See Blackburn, Harrison, and Rutstrom (1994), Champ et al. (1997), Fox et al. (2003), and List and Shogren (2002). Results generally suggest that calibration factors are commodity-specific. Thus, calibration may not be flexible enough to provide a general approach to attenuating hypothetical bias.

(2) Loomis et al. (1996) utilize a similar approach in their experiments on hypothetical bias with private goods that are readily available in the market place. They appeal to subjects not to provide an estimate of the market price of the good in their value elicitation experiments. They find that such appeals do attenuate hypothetical bias somewhat.

(3) We stick with the "consequentialism" moniker to distinguish this treatment from real treatments.

(4) This does not suggest outright deception. Rather, if the findings may influence public policy, then this should be relayed to the respondents. Note the similarities between this methodology and the "randomized payment" approach used in experimental economics, whereby agents play, for example, ten rounds of a game and are only paid for one round, which is determined randomly.

(5) We note that two separate papers by Cummings and Taylor (1998,1999) test "realism" and "cheap talk" in the same institution with precisely the same good, but straightforward comparisons of the methods have not been highlighted in the literature. Also, as noted by Taylor (1998), the referendum used in these papers is not closed, and therefore not incentive compatible. Bulte et al. (2005) explore cheap talk and consequentialism within the same experimental design but unfortunately have no actual values due to the nature of their good.