A few weeks ago Craig Landry (aka, the hottest Maryland grad to hit ECU since Tim Haab) came to our department and gave a seminar. His paper dealt with preference anchoring. The problem is that a bunch of stated preference studies (mostly contingent valuation) find that demand for environmental goods (i.e., changes in water quality) depend on unintentional suggestions made in the surveys that elicit the preferences.
Warning: the rest of the post might be too geeky for the typical env-econ reader. So skip the rest and head right down to the picture that proves that environmental economists sometimes get out of their offices.
For example, if you are asked if you'd pay $A for Q you might say yes. Then, the smart-a** economist will ask you if you'll pay $2*A for Q. If you say no, we think that your willingness to pay is between $A and $2*A. When we give different people different $A values to start off with it turns that willingness to pay is positively correlated with the initial $A. That's anchoring.
During the seminar I made a few goofy comments (surprise!) about how I didn't think anchoring was a problem for survey data since it occurs in the real world (my preferences are anchored to the door at the mall in which I enter) and, for sure, it didn't crush neoclassical demand theory (which is what some argue). After I made those comments, I realized that I didn't know I thought that way when I said it and so I rethunk. I still don't think anchoring is a problem for neoclassical demand theory ... if real-life consumers make choices based on anchors and they find they make a mistake then they'll alter their behavior. In short: anomalies? Yawn.
But in environmental valuation surveys, anchored preferences may be a problem since respondents might not get a chance to alter their stated behavior. The number for benefit cost analysis that we derive from the anchored preferences might be wrong. Hence, let's keep that anchoring literature going. And market experience probably helps avoid those anchors (e.g., Download craigs_awesome_paper.pdf).
And here is the view at the turnaround spot on one of the obligatory Saturday hike locations that all of our seminar speakers get to enjoy (if they so choose):
Click on the thumbnail
