RT Journal Article
SR Electronic
T1 Welfare with Imperfect Foreknowledge: The Case of Risk Aversion
JF Land Economics
JO Land Econ
FD University of Wisconsin Press
SP 43
OP 55
DO 10.3368/le.96.1.43
VO 96
IS 1
A1 Jorge Holzer
A1 Kenneth McConnell
YR 2020
UL http://le.uwpress.org/content/96/1/43.abstract
AB We study the use of discrete choice models in the context of recreation when there may be discrepancy between the anticipated (ex ante) and the experienced quality of site attributes due to imperfect information. Unlike previous literature on the topic, we relax the assumption of risk neutrality. Adopting a model with quasi-linear preferences, we characterize the disparity between ex ante and ex post utility by decomposing expected utility into a term stemming from bias in beliefs and a component representing willingness to pay for reducing uncertainty in site attributes. Our results show that ex post corrections of welfare losses are attenuated by greater dispersion in beliefs about amenities. (JEL D61, Q26)