Incorporating Outcome Uncertainty and Prior Outcome Beliefs in Stated Preferences

Thomas Lundhede, Jette Bredahl Jacobsen, Nick Hanley, Niels Strange and Bo Jellesmark Thorsen


Stated preference studies tell respondents that policies create environmental changes with varying levels of uncertainty. However, respondents may include their own a priori assessments of uncertainty when making choices among policy options. Using a choice experiment eliciting respondents’ preferences for conservation policies under climate change, we find that higher outcome uncertainty reduces utility. When accounting for endogeneity, we find that prior beliefs play a significant role in this cost of uncertainty. Thus, merely stating “objective” levels of outcome uncertainty will not necessarily solve the problem of people valuing something differently from originally intended: respondents’ prior beliefs must be accounted for. (JEL C53, D62)