Robert Frank devotes his NYT Economic Scene column to the co-Nobel Prize winner (Of Hockey Players and Housing Prices). He makes an interesting observation about preferences and values that has implications for environmental valuation. The idea is that what people tell you about their values might be more revealing than their behavior. This is an appalling notion to economists who have always believed that behavior reveals values, and talk is cheap.
Heres the quote:
LEFT to their own devices, hockey players invariably skate without helmets. Yet when they vote in secret ballots, they almost always favor a rule requiring the gear. If this rule is such a good idea, why don't players just wear helmets on their own?
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Mr. Schelling's example thus suggests a radical new perspective on the various ways societies restrict individual choice. Consider the similarity between helmet rules and workplace safety regulations. Because riskier jobs pay higher wages, workers can gain advantage by accepting them. Just as unrestricted hockey players may feel compelled to discard their helmets, workers who are free to sell their safety may realize that unless they seize the higher wages, they will consign their children to inferior schools. In each case, limiting our options can prevent a mutually disadvantageous race to the bottom.
The logic of Mr. Schelling's example also challenges the cherished theory of revealed preference, which holds that we learn more about what people value by watching what they do than by listening to what they say.
If someone chooses a risky job paying $1,000 instead of a safer one paying $900, the theory concludes that he must value the extra safety at less than $100. Maybe, but only in the sense that a bareheaded hockey player reveals that he values winning above safety. In both cases, we may learn more about what people value by examining the rules they support than by studying their individual choices.
A revealed preference methodology for valuing risky choices, including environmental risk, is hedonic price method. A stated preference methodology for valuing changes in environmental quality and risk is the contingent valuation method. More on this method soon from Tim (another nudge, nudge!).
