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Scale-perception bias in the valuation of environmental risks

Jorge Araña () and Carmelo J. León

Applied Economics, 2012, vol. 44, issue 20, 2607-2617

Abstract: The valuation of environmental risks is commonly approached with the utilization of stated preference methods such as contingent valuation. In these methods, money is utilized as the scale that reflects the individual's underlying utility function. However, this scale can vary across individuals due to different perceptions on what are the right or appropriate bounds for Willingness To Pay (WTP). In this article, we test for scale-perception bias and propose a correction method based on the utilization of anchoring vignettes that define different degrees of preference for the nonmarket good. The proposed method is applied to study the commonly found anomaly ‘probability neglect’, which is defined by the insensitivity to the probability levels in the valuation of environmental risks. The results show that probability neglect disappears when WTP responses are corrected for self-perception bias through the utilization of the anchoring vignettes approach.

Date: 2012
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Handle: RePEc:taf:applec:44:y:2012:i:20:p:2607-2617