Question

In a sentence or two, explain why many economists are suspicious of the results of contingent valuation studies estimating the willingness to pay to preserve native habitat for various animal species. In your answer, please try to use the term “hypothetical bias.”

Answer 1

Contingent valuation method is a way of determining value of an intangible benefit that relies on surveys of people interested in it. The survey asked them to assign a monetary value to their preferences and uses of natural resources ,Contingent valuation method is used to assign a value to an environmental benefit. This method defines the willingness to pay for existence of environmental resources and the compensation required for its losses. By applying this method we have to calculate the mean and medians of thee willingness to pay and remove the unrealistic amounts like zeros or the amount that greatly differ from other people replies. The remaining amount represents the contingent valuation But the contingent valuation method has its own weakness. Many economists are suspicious about the result of contingent valuation studies estimating the willingness to pay to preserve native habitat for various animal species. One of the main weakness of this method is hypothetical bias. Hypothetical bias may results in responses of people in which their willingness to pay are greater than actual payments, A bias may be introduced by individuals who have other motives other than ensuring correct results. If people surveyed are against a project, they may try to skew the survey for their own purposes .The survey methodology may give too much weight to the type of people who answer the survey, it would leads to inaccurate results for this method. Inaccurate results may affect the project and preservation of natural resources.