How can policy-makers get people to tell them how much they value things like better health or an improved environment? New experimental research by Professor Magnus Johannesson and colleagues has found a simple solution in the form of a follow-up to hypothetical questions about people”s ”willingness-to-pay”.
Their study, which is published in the January 2008 issue of The Economic Journal, will be especially valuable for governments in determining which drugs or other healthcare services to provide.
Governments need to be able to judge the value of certain goods in order to decide whether they are worth spending taxpayers” money on. These can range from deciding whether to provide a drug through the NHS to deciding whether to invest in improving air quality.
One way of estimating this value is to ask individuals how much they are willing to pay for a certain outcome. The drawback of these hypothetical questions is that they greatly overestimate the real willingness to pay. This new study demonstrates that the willingness to pay can be accurately estimated by adding a simple follow-up
question about the certainty of hypothetical responses.
These results come from a field experiment in which two groups were asked how much they would be prepared to pay for diabetes treatment:
- One group of patients (the ”real” group) could buy a diabetes management programme delivered at their local pharmacy at a price of $15, $40, or $80.
- In the second (”hypothetical”) group, patients answered a hypothetical question about buying the diabetes management programme at those same prices. In this second group, patients who answered ”yes” were asked if they were ”definitely sure” or ”probably sure” of their response.
It turned out that about twice as many diabetes patients answered ”yes” in the hypothetical group than in the real group. The value of diabetes treatment would have been substantially overestimated inferred from the hypothetical group’s first answer.
But the number of people in the hypothetical group who not only answered ”yes” but also that they were ”definitely sure” corresponded closely to the number of buyers in the real group.
By including the simple follow-up question about certainty, the overestimation in hypothetical willingness to pay questions can therefore be adjusted for in a simple way.
”Eliciting Willingness to Pay without Bias: Evidence from a Field Experiment” by Karen Blumenschein, Glenn Blomquist, Magnus Johannesson, Nancy Horn and Patricia Freeman is published in the January 2008 issue of The Economic Journal.
Stockholm School of Economics
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