The Use of Hypthetical Baselines in Stated Preference Surveys

Researchers using stated preference (SP) techniques have increasingly come to rely on what we call ―hypothetical baselines.‖ By the term ―hypothetical baseline,‖ we mean that respondents are provided with a description of a current state or baseline, but that this baseline is intentionally not the actual state of environmental quality, health or other baseline condition. Respondents are asked to disregard their existing status quo conditions for a new baseline. The SP researcher then poses a valuation question or choice task that is contingent not on the existing status quo state of the world, but rather the state of the world described in this new hypothetical baseline. In this paper we argue that SP researchers have often used hypothetical baselines without carefully considering the cognitive challenges this poses for respondents or the difficulties this practice creates for advising policy makers. We discuss the implications of hypothetical baselines on valuation and policy analysis, using arguments from the behavioral economics literature as well as from standard theory.

In the next, second section of the paper we define more precisely what we mean by a ―hypothetical baseline.‖ The third section presents a simple typology of four types of SP studies, two of which rely on hypothetical baselines. In the fourth section we give six examples of conditions that a SP researcher may change to create a hypothetical baseline, and in the fifth section we list four main reasons why SP analysts use hypothetical baselines in their research designs. The sixth section discusses some of the risks associated with the use of hypothetical baselines, and in the seventh, concluding section of the paper we offer some guidance for the use of hypothetical baselines in SP surveys.

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Economy and Environment Program for Southeast Asia