The incorporation of subjective risks into choice experiments to test scenario adjustment
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In choice experiment (CE) applications, subjects are typically assumed to fully accept information
given in the status quo (SQ) alternative, however, subjects might adjust such information on the basis of their
subjective beliefs. This phenomenon is known as scenario adjustment.
By using a CE field survey, we investigate whether subjects adjust risks portrayed in the SQ using
their subjective estimates via a two-stage approach. In the first stage, subjective risks are elicited using the
exchangeability method. In the second stage, two treatment groups are designed. In the first group, each
subject is presented with a SQ which incorporates her/his own subjective risk estimate, and, hence, no
adjustment is required. In the second group, each subject faces a SQ where the presented risk is not
consistent with her/his own estimate, and, hence, a mental adjustment to the scenario might take place.
Our modeling results suggest that subjects who are provided with a SQ in which the risk is lower than
their own subjective estimates have a higher maximum willingness to pay (WTP) for a risk reduction than
subjects provided with a SQ where the risk is consistent with their perceptions. Hence, in this case the
scenario adjustment takes place. In contrast, subjects who are presented with a SQ where the risk is higher
than their subjective estimates, overreact to the risk information, and have a higher WTP for the risk reduction than subjects who face a SQ where the presented risk is consistent with their perceived risks.
Hence, in this case they appear to go along with the information in the SQ and abandon their subjective estimate