Thinking and Deciding

336 UTILITY MEASUREMENT
pay about ten times as much for ten as for one. Some studies of quantity effects are
unable to detect any difference at all, and those that find differences find them to be
much smaller than this. We thus cannot use CV responses to determine the value of
preventing an oil spill, which is what we want to know.
One reason for insensitivity to quantity seems to be the prominence effect. Even
when the task involve matching, subjects assign dollars according to the importance
of the issue rather than its quantity, as if these were separate dimensions and the
importance was more important. Subjects do not really mean to be insensitive to
quantity; they just ignore it. When the question asks how much they would pay per
unit of the good, responses are about the same as those to questions about paying for
one unit or paying for ten units, which are also about the same (Baron and Greene,
1996).
Another possible reason for insensitivity is that a single good evokes points of
comparison like itself. For example, CV responses to saving endangered Australian
mammals are higher than CV responses to reducing skin cancer among farmers, but
subjects prefer reducing skin cancer when the two programs are presented side by
side. When each program is evaluated alone, it may be compared to other programs
of the same type. Skin cancer is relatively low on the ladder of important diseases
(except to those who have it, of course), but Australian mammals are unique and well
known, hence high on the ladder of animals worth saving. But when the choice is
between people and animals, people seem more important.
Sensitivity to cost
Users of CV typically assume that the value of the benefits is a function of the effects
of the good in question, not its cost. Although cost is usually a good guide to value,
excessive attention to cost as a guide can cause trouble. For example, suppose that
government program X has a little more benefit than program Y, so that willingness
to pay (WTP) for X would be a little higher if the costs of the two programs were
the same. But suppose that respondents would express higher WTP for Y than for
X if they learned that Y was more costly for the government to implement. Then, if
the government used WTP as an index of preference, and if cost were not a major
issue, it would assume that people preferred program Y. A government that acted on
this information would choose Y over X. The citizens would pay more and get less
benefit.
Reported WTP increases with cost of the good even when benefit is constant.
This was shown in the study of beer on the beach (Thaler,1985,described in Chapter
12): WTP was higher if the beer came from a fancy resort hotel than if it came from a
mom-and-pop store. Because the beer was to be consumed on the beach, none of the
atmosphere of the hotel would be consumed. Baron and Maxwell (1996) asked WTP
questions concerning hypothetical public goods, such as removing harmful chemicals
from drinking water. When the project was described in a way that made it seem
more costly, respondents were willing to pay more. The results can be understood as
overextension of a somewhat useful heuristic: Things that cost more often yield more