When preferences go bad

John Rolfe

When preferences go bad

• Treat most parameters in CM as linear and continuous

• Very limited information available to distinguish how accurate this is

• Preferences could be:– Non-linear– Discontinuous– Lexicographic

The philosophical debate • Economists tend to assume that people

can tradeoff between different items– But allow that at some tradeoffs, or tradeoffs

at some levels, may not be realistic• WTA $20,000 to sell your children into slavery • WTP $20,000 to send children to private schools

• Some social scientists tend to assume preferences should not compared

Non-linear

• When attribute changes are relatively small (and payment changes are small), a linear-in-parameters assumption is okay

• Expect non-linear effects when preference range is large enough to create significant differences in marginal utility

• Can handle in CM by converting data to another form

Discontinuous preferences

• Preferences may not follow some continuous pattern

• Classic case is WTP versus WTA– One sharp break in preferences

• Preference behaviour more likely to be in ‘blocks’ when dealing with categorical attributes

Coefficient values for estuary levelscoefficient

-0.40

-0.20

0.00

0.20

0.40

0.60

0.80

50% 55% 60% 70% 75% 80% 85%

Status quo level

How to interpret preferences for Estuary health?

• Declining values for lower levels of health• Almost flat values for increases in

estuary health• Simply two slopes for WTP and WTA

sections ?• Or are preferences for protection

concentrated on loss scenarios?

Values for unallocated water levels

-15% -10%

-5%

5%

10% 15%20%

-0.8

-0.6

-0.4

-0.2

0

0.2

0.4

0.6

Status quo level

Discontinuous preferences • Results from modelling reserve water levels

suggest two groups of values – depending on whether change is negative or positive

• Suggest that preferences may be discontinuous depending on whether losses or gains are involved

When respondents won’t make tradeoffs

• Two key categories• Response pattern is general

– essentially this is a design problem, – we would normally set out the CM experiment in

ways so that the tradeoffs don't occur.• Response patterns only in sub-groups

– essentially an analysis problem. – Do the techniques we have for addressing

heterogeneity in choice behaviour cope with lexicographic sub-groups?