Asset integration and attitudes to risk : theory and evidence

Measures of risk attitudes derived from experiments are often questioned because they are based on small stakes bets and do not account for the extent to which the decision-maker integrates the prizes of the experimental tasks with personal wealth. We exploit the existence of detailed information on individual wealth of experimental subjects in Denmark, and directly estimate risk attitudes and the degree of asset integration consistent with observed behavior. The behavior of the adult Danes in our experiments is consistent with partial asset integration: they behave as if some small fraction of personal wealth is combined with experimental prizes in a utility function, and that this combination entails less than perfect substitution. Our subjects do not perfectly asset integrate. The implied risk attitudes from estimating these specifications imply risk premia and certainty equivalents that are a priori plausible under expected utility theory or rank dependent utility models. These are reassuring and constructive solutions to payoff calibration paradoxes. In addition, the rigorous, structural modeling of partial asset integration points to a rich array of neglected questions in risk management and policy evaluation in important field settings

Framing for incentive compatibility in choice modelling

The incentives that motivate respondents to reveal their preferences truthfully have been a long-standing area of research in the non-market valuation literature. A number of studies have been undertaken to investigate incentive compatibility in nonmarket valuation. Most of these used laboratory environments rather than field surveys (e.g. Carson and Burton, 2008, Harrison, 2007, Lusk and Schroeder, 2004, Racevskis and Lupi, 2008). Only a few studies investigating incentive compatibility have considered multi-attribute public goods with an explicit provision rule in a choice experiment (Carson and Groves, 2007, Collins and Vossler, 2009, Carson and Burton, 2008). The design of a choice modelling study that avoids strategic behaviour has proven particularly difficult because of multiple choices and difficulties in developing a majority voting provision rule. This study investigates the impact of the inclusion of a framing statement for incentive compatibility in a field survey choice modelling study. An incentive compatible statement (provision rule) that sets out to respondents the rule relating to when the good under consideration will be provided was employed. The impact of a provision rule across three alternative choice modelling multiple choice questionnaires was tested by comparing results between split samples with and without a provision rule. Four split samples were used to test the impact of a provision rule on preferences across different communities including local/rural residents and distant/urban residents. A choice modelling analysis that involved a conditional logit model and a random parameter model was used to elicit household willingness to pay for improvements in environmental quality in the Hawkesbury-Nepean catchment. The results of the study show that the inclusion of a provision rule had an effect on preferences in the distant/urban communities. However, the impact of a provision rule in the local/rural community sub-samples was negligible. This study suggests that the impact of a provision rule should be analysed in the context of different community characteristics.Choice modelling, Incentive comparability, Provision rule, Non-market valuation, Environment, Environmental Economics and Policy,

The Effects of a Provision Rule in Choice Modelling

This research report investigates the effects of including a provision rule in choice modelling non-market valuation studies. Split samples with and without a provision rule were used to test for differences in household willingness-to-pay for improvements in environmental quality in the Hawkesbury-Nepean catchment. Local/rural and distant/urban sub-samples of residents were selected. The results of the study show that the inclusion of a provision rule had an effect on preferences in the distant/urban communities; however, the impact of a provision rule in the local/rural community sub-samples was negligible.Choice modelling, incentive comparability, provision rule, non-market valuation, environment, Environmental Economics and Policy, Research Methods/ Statistical Methods,

Using Expert Judgment to Assess Adaptive Capacity to Climate Change: Evidence From a Conjoint Choice Survey

We use conjoint choice questions to ask public health and climate change experts, contacted at professional meetings in 2003 and 2004, which of two hypothetical countries, A or B, they deem to have the higher adaptive capacity to certain effects of climate change on human health. These hypothetical countries are described by a vector of seven attributes, including per capita income, inequality in the distribution of income, measures of the health status of the population, the health care system, and access to information. Probit models indicate that our respondents regard per capita income, inequality in the distribution of income, universal health care coverage, and high access to information as important determinants of adaptive capacity. A universal-coverage health care system and a high level of access to information are judged to be equivalent to $12,000-$14,000 in per capita income. We use the estimated coefficients and country sociodemographics to construct an index of adaptive capacity for several countries. In panel-data regressions, this index is a good predictor of mortality in climatic disasters, even after controlling for other determinants of sensitivity and exposure, and for per capita income. We conclude that our conjoint choice questions provide a novel and promising approach to eliciting expert judgments in the climate change arena.

Behavioral Determinants of Biofortified Food Acceptance: The Case of Orange-fleshed Sweet Potato in Ghana

Biofortified foods are being introduced in sub-Saharan Africa as an important strategy to help address micronutrient malnutrition. However, there has been little research on factors that could play decisive roles in their successful introduction. This paper investigates the determinants of consumer acceptance of biofortified orange-fleshed sweet potato (OFSP) using data from a choice experiment conducted in Ghana. I find that OFSP is preferred to traditional white-fleshed and yellow-fleshed sweet potatoes as indicated by consumers\u27 marginal willingness to pay for the three varieties. I also find that respondents\u27 socio-economic characteristics do not have a significant effect on consumer acceptance of OFSP. Conversely, providing consumers with information about the nutritional benefits of OFSP exert a substantial, positive and significant effect on their acceptance of the produce. Providing nutritional information thus appears to be more crucial in the successful introduction of OFSP and other biofortified foods

Goals and Plans in Protective Decision Making

Protective decisions are often puzzling. Among other anomalies, people insure against non-catastrophic events, underinsure against catastrophic risks, and allow extraneous factors to influence insurance purchases and other protective decisions. Neither expected utility theory nor prospect theory can explain these anomalies satisfactorily. We propose a constructed-choice model for general decision making. The model departs from utility theory and prospect theory in its treatment of multiple goals and it suggests several different ways in which context can affect choice. To apply this model to the above anomalies, we consider many different insurance-related goals, organized in a taxonomy, and we consider the effects of context on goals, resources, plans and decision rules. The paper concludes by suggesting some prescriptions for improving individual decision making with respect to protective measures.

Pairwise Comparisons as a Scale Development Tool for Composite Measures

Composite scales are widely used for measuring aggregate social science concepts. These often consist of linear indices obtained as the weighted sum of a set of relevant indicators. However, selecting coefficients (or weights) that reflect the substantive importance of each indicator towards the concept of interest is a difficult task. We propose a method for the generation of linear indices for aggregate concepts based on pairwise comparisons. Specifically, we ask a group of subject-matter experts to perform a series of pairwise comparisons, with respect to the concept of interest, between profiles displaying different combinations of indicators. This allows us to estimate coefficients for each indicator that provide a linear approximation to how experts make the pairwise evaluations. As we show, the method makes it straightforward to assess intercoder reliability, while being a more accessible task than directly asking experts for coefficients. We demonstrate our method with an application to the concept of ‘productive ageing’, including a cross-cultural comparison of weighting schemes derived from a group of Italian and a group of South Korean experts on this concept