HYPOTHETICAL BIAS, RISK ATTITUDES AND PREFERENCE UNCERTAINTY IN CONTINGENT VALUATION STUDIES

Environmental evaluation is increasingly used as a tool to evaluate the sustainability of projects/programs with environmental effects. Among the most commonly used methods to economically evaluate the environmental effects, contingent valuation is particularly frequent. Despite its wide applicability, its external validity is in many instances questioned. This paper explores the connection between preference uncertainty, risk attitudes and hypothetical bias, using a survey of Brazilian citizens concerning the local environmental impacts of a renewable energy power plant. Risk preferences were elicited on a 10-point scale controlling for context; certainty regarding stated willingness-to-pay was also measured on a 10-point scale. Results show that both risk attitudes and certainty levels are positively associated with respondents' willingness-to-pay values, and that their effect is independent. In addition, if it is assumed that certainty levels in responses expresses preference uncertainty (through different variances), then risk attitudes are no longer statistically significant. This exploratory study calls for the consideration of risk attitudes and certainty levels in valuation studies, in particular when hypothetical bias is a concern, thus suggesting future applications and replications of these results.