Valuation Techniques for Social Cost-Benefit Analysis: - HM Treasury

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learning and experience Bateman et al. (2006) instead recommend a double-bound format
where participants have the opportunity to ‗discover‘ their preferences in the survey.
However, the neurological evidence on the effects of anchoring (Plassman et al., 2008) would
suggest that prices should not be mentioned in any format during a contingent valuation survey
and therefore that the open-ended elicitation format would be most suitable. Under this format,
participants are simply asked to state their maximum WTP or minimum WTA, with no mention
of a starting price (which would create an anchor). At the same time, however, this format takes
the respondents in contingent valuation further away from the type of market institutions with
which they are familiar when deciding whether to buy a good.
In addition, it is not clear how applicable these results are for the stated and revealed preference
methods because opportunities for learning are often minimal. It is hard to provide repetitive
experience for many of the public goods assessed in stated preference (Braga and Starmer,
2005) and revealed preference often relies on markets where transactions are infrequent (eg,
housing market) so that few chances for learning exist at the individual level (Genesove and
Mayer (2001). To counteract this Bateman et al. (2009) have recently used virtual reality
simulators to communicate environmental changes to survey respondents. Some contingent
valuation surveys also now employ a workshop format whereby people discuss the valuation
issues with others and they can seek further information from moderators and experts (Hanley
and Shrogen, 2002).
Alternatively, Gregory et al. (1993), propose a deliberative CV mechanism (multi-attribute utility
analysis) in which a group of stakeholders, that includes the affected citizenry and technical
experts, assesses the merits of the good under consideration and determines which attributes
have the greatest impact on utility and an agreed conversion scale to monetise the ‗utils‘ 10 . They
claim that
―designers of a CV study should function not as archaeologists, carefully uncovering
what is there, but as architects, working to build a defensible expression of value‖
Gregory et al. (1993).
There is some recent work on combining stated and revealed preference data. This allows stated
preference data to be checked against actual behaviour whilst also extending the range of
goods estimable for revealed preference methods. Stated preference data can also help in
isolating causal effects in hedonic market approaches, especially in trip cost methods for
recreational sites (see Accent, 2010 and Whitehead et al., 2008 for a full discussion).
4.2.2 Whether life satisfaction is a good measure of utility
The subjective well-being approach assesses the impact of non-market goods on people‘s life
satisfaction as reported in surveys such as the ONS‘s Integrated Household Survey. The approach
does not rely on the rationality axioms holding and therefore avoids many of the problems
associated with the preference-based approaches that were outlined in section 4.2.1. The
approach does, however, rely on stated life satisfaction being an accurate measure of welfare or
utility. It is possible to challenge whether this is the case.
Life satisfaction can be seen as being made up of a balance of affect (positive and negative
emotions and feelings) together with a cognitive assessment of how well one‘s life measures up
to aspirations and goals (Diener, 1984; Kahneman and Krueger, 2006). A life satisfaction
response will incorporate to some extent a retrospective judgement of one‘s life together with
10 Multi-attribute utility analysis is a form of Multi-Criteria Analysis. For full details see Department for Communities and Local Government (2009)
Multi-criteria analysis: a manual.