1: Market data analysis. For example, when measuring HWTP for specialty goods, direct methods overestimate it by 28% and indirect methods do so by 40%. Schlag (2008) gauges RWTP from eBay by exclusively using the highest bid from each participant but disregarding the winners’ bid. Theory, measurement, and application. Comparing all full models with interactions, the model with the lowest AICc (Burnham and Anderson 2004) did not feature a significant interaction, indicating that the possible interactions are small and do not affect our results. Formally, we can only “not reject” a null hypothesis of no moderator effect, but these findings suggest that we can dispel fears about influencing WTP results too much by offering participation fees or an initial balance. ), Handbook of pricing research in marketing (pp. Grewal, D., Puccinelli, N., & Monroe, K. B. https://doi.org/10.1007/s11747-019-00666-6, DOI: https://doi.org/10.1007/s11747-019-00666-6, Over 10 million scientific documents at your fingertips, Not logged in The keywords included “willingness-to-pay,” “reservation price,” “hypothetical bias,” and “conjoint analysis.” We also conducted a manual search among leading marketing and economics journals. As an effect size (ES) measure, we use the response ratio of HWTP and RWTP (Hedges et al. Journal of Marketing Research, 42(2), 141–156. Sichtmann, C., Wilken, R., & Diamantopoulos, A. For our effort, we define the response ratio as. (1999). Accordingly, it applies to studies that measure the same outcome on different scales (Borenstein et al. (1998). Indirect methods address this drawback by forcing participants to weigh the costs and benefits of different alternatives. Indifference curves that travel with the choice set. 2013), which can account for dependence between observations. Second, indirect methods assume a linear relationship between price levels, through their use of linear interpolation (Jedidi and Zhang 2002). In this case, the hypothetical bias increases when the article does not mention any introduction of the method for measuring RWTP to participants (β = 0.1546, Exp(β) = 1.1672, SE = 0.0524, p = 0.0032) and when the method involves mock auctions (β = 0.2032, Exp(β) = 1.2253, SE = 0.0604, p = 0.0008). Measuring HWTP and RWTP using a within-subject design results in a greater hypothetical bias than does a between-subject design (β = 0.0878, Exp(β) = 1.0918, SE = 0.0439, p = 0.0455), such that the hypothetical bias increases by an additional 9.18 percentage points in this case. 2012). Second, direct methods ask consumers directly for their WTP, whereas indirect methods require consumers to evaluate, compare, and choose among different product alternatives, and the price attribute is just one of several characteristics. Consequently, when designing marketing experiments to investigate the hypothetical bias, researchers should use a between-subject design to prevent the answers from influencing each other. In their web appendix, Miller et al. Every bidder has an incentive to bid up WTP (Rutström 1998), so an English auction reveals all bidders’ WTP, except for the winner’s, who stops bidding after the last competitor leaves. Existing meta-analyses (Carson et al. (1964). Type of measurement HWTP reveals some mean differences between direct (0.1818) and indirect (0.2280) measures, which represents model-free support for H1b. (2013) show that the perceived innovativeness of a product increases the hypothetical bias. RAND Journal of Economics, 36(4), 890–907. 2013; Sichtmann et al. American Journal of Agricultural Economics, 86(2), 467–482. Tutorial in Quantitative Methods for Psychology, 8(1), 23–34. Journal of Product Innovation Management, 30(3), 560–573. Value has a significant, positive effect at the 10% level (β = 0.0002, Exp(β) = 1.0002, SE = 0.0001, p = 0.0656), in weak support of H2. (2012). The resulting ESs correlate, because they are based on a common subject. Hypothetical bias, choice experiments and willingness to pay. Ecology, 92(11), 2049–2055. There are different approaches for dealing with stochastically dependent ESs, such as ignoring or avoiding dependence, or else modeling dependence stochastically or explicitly (Bijmolt and Pieters 2001; van den Noortgate et al. Germany: Josef Eul Verlag. Perhaps most important, the type of measurement HWTP has a significant effect on the hypothetical bias, comparable in size to the effect in the main model. Accordingly, we excluded moderators—all control variables that do not appear in any hypotheses—in the following order: type of experiment HWTP (GVIF1/(2 ∗ df) = 3.4723), offline/online RWTP (GVIF1/(2 ∗ df) = 3.2504), discipline (GVIF1/(2 ∗ df) = 2.2.4791), product/service (GVIF1/(2 ∗ df) = 2.2.3290), and peer reviewed (GVIF1/(2 ∗ df) = 2.0419). Two main types of dependencies arise between studies and ESs. International Journal of Research in Marketing, 26(2), 108–118. Second, a new product’s introductory price must be carefully chosen, because a poorly considered introductory price can jeopardize the investments in its development and threaten innovation failures (Ingenbleek et al. Management Science, 63(3), 829–842. The application of Willingness To Pay (WTP) measurement with Contingent Valuation Method (CVM) to medical services is gradually increasing. Schlereth, C., & Skiera, B. Finally, the online auction platform eBay can provide a direct measure of RWTP. Irrationals Verhalten. Kimenju et al. Vickrey, W. (1961). Although multiple bids from one participant imply that not every bid reveals true WTP, the highest and latest bid does provide this information (Ockenfels and Roth 2006). (1994) report HWTP ($109) that overestimates RWTP ($12) by a factor of nine when excluding outliers, and it is another outlier in our database. Among the variety of indirect methods to compute WTP (Lusk and Schroeder 2004), the most prominent is choice-based conjoint (CBC) analysis. To reduce the risk of a publication bias, we extended our search to the Social Science Research Network, Research Papers in Economics, and the Researchgate network, and we checked for relevant dissertations whose results had not been published in journals. '���B���`�o�J ��ϋ��8?����jJ���{�o��^'���{q4[����_��,�_�U��w�3�W��>&��?#�]��Q�`3pj8�g�@�l3��Ly6tk}4�MXb2�7���� In addition, our findings on some product-level factors are new, namely that the hypothetical bias is greater for higher valued products and for specialty goods. (2012). Experimental evidence on the existence of hypothetical bias in value elicitation methods. Third, the hypothetical bias depends on a variety of factors, including individual-level considerations (Hofstetter et al. Setting the wrong price means you run the risk of losing sales by turning away consumers or setting the price too low compared to what a consumer would pay. Therefore, we hypothesize: The hypothetical bias is least for convenience goods, greater for shopping goods, and greatest for specialty goods. We integrate existing empirical evidence about the accuracy of various direct and indirect methods to measure HWTP. Meta-analytic evidence. It equals “none” if the method was not introduced, “explanation” if the method and its characteristics were explained, “training” if mock auctions or questions designed to understand the mechanism occurred before the focal auction took place or questions were asked, and “not mentioned” if the study does not indicate whether the method was introduced. Murphy, J. J., Allen, P. G., Stevens, T. H., & Weatherhead, D. (2005). In the third category, we consider moderators that deal with the research design. 2004) and have been used in prior empirical studies to measure RWTP. Leeflang, P.S.H., Wieringa, J.E., Bijmolt, T.H.A., & Pauwels, K.H. Pebsworth, P. A., MacIntosh, A. J. J., Morgan, H. R., & Huffman, M. A. This meta-analysis suggests several directions for further research, some of which are based on the limitations of our meta-analysis. Nagle, T. T., & Müller, G. (2018). &��.�+. 2016; Bijmolt et al. (2010) show that participants state a higher RWTP when real products, rather than images, have been displayed. Accurately measuring willingness to pay for consumer goods: a meta-analysis of the hypothetical bias. - This study compares the performance of four commonly used approaches to measure consumers’ willingness to pay with real purchase data (REAL): the open-ended (OE) question format; choice-based conjoint (CBC) analysis; Becker, DeGroot, and Marschak's (BDM) incentive-compatible mechanism; and incentive-aligned choice-based conjoint (ICBC) analysis. stream (2011), stronger consumer preferences lower the hypothetical bias. A higher WTP indicates a worse quality of life and thus, as with utilities, WTP is a measure of the quality of life disease burden. We excluded the moderator with the highest p value from the full model, reran the analysis, and repeated this procedure until we had only significant moderators left. Yet no clear summary of these findings is available,Footnote 1 and considering the discrepancy between theory and practice, “there is a lack of consensus on the ‘right’ way to measure […] consumer’s reservation price” (Wang et al. Understanding influence of marketing thought on practice: An analysis of business journals using textual and latent Dirichlet allocation (LDA) analysis. In this dissertation a new method is proposed to estimate willingness-to-pay (WTP). Journal of Economic Behavior & Organization, 81(1), 1–8. Brown, T. C., Ajzen, I., & Hrubes, D. (2003). Fifth, the majority of studies included herein used open questioning as the direct method for measuring WTP. Bolton, G. E., & Ockenfels, A. Gensler, S., Hinz, O., Skiera, B., & Theysohn, S. (2012). Finally, we conclude by highlighting our theoretical contributions, explaining the main managerial implications, and outlining some limitations and directions for further research. Tully, S. M., & Winer, R. S. (2014). Treating them as independent would erroneously add RWTP to the analysis twice. Very few studies have investigated these factors, so we could not incorporate them in our meta-analysis, though consumer characteristics likely explain some differences. Counterspeculation, auctions, and competitive sealed tenders. Willingness to pay (WTP) is the maximum price at or below which a consumer will definitely buy one unit of a product. With a meta-analysis of 77 studies reported in 47 papers and resulting in 115 effect sizes, we test that assumption by assessing the hypothetical bias. (2011). Eggers, F., & Sattler, H. (2009). This hypothetical bias depends on several factors, for which we formulated hypotheses (Table 5) and which we discuss subsequently. MEASURING WILLINGNESS-TO-PAY FOR TRANSPORTATION IMPROVEMENTS Daniel McFadden 1. The first model, including only the intercept, results in an estimate (β) of 0.1889 with a standard error (SE) of 0.0183 and a p value < .0001. To the best of our knowledge, this approach has not been applied by meta-analyses in marketing previously. When researching the influence of consumer characteristics on the hypothetical bias though, it would be more appropriate to choose a within-subject design (Hofstetter et al. 2005). Many researchers assume that direct methods create a stronger hypothetical bias, because they evoke greater price consciousness (Völckner 2006). Because B2B products and services tend to be more complex, customers might prefer to identify product characteristics and to include them separately when determining their WTP in response to an indirect method. Reliability and validity of conjoint analysis and self-explicated weights: A comparison. The experiments in our meta-analysis span different countries and years, so we converted all values into U.S. dollars using the corresponding exchange rates. Journal of Retailing, 90(2), 255–274. Regarding the control variables, student sample (β =  − 0.1026, Exp(β) = 0.9025, SE = 0.0344, p = 0.0021) again has a significant effect, and introduction of method for RWTP affects the hypothetical bias significantly. The residuals uki are assumed to be K-variate normal with zero average and a covariance matrix τ. Ding, M. (2007). New empirical generalizations from a meta-analysis of the market share–performance relationship. The moderators excluded from the main models due to multicollinearity (product/service, type of experiment HWTP, offline/online RWTP, and discipline) do not show significant influences. Innovative Marketing, 2(4), 8–32. 2005). Second, the research stimulus had to be private goods or services. Charness, G., Gneezy, U., & Kuhn, M. A. A random nth-price auction. An extensive comparison of those adaptions, in terms of their effects on the hypothetical bias, would provide researchers and managers more comprehensive insights for choosing the right method when measuring WTP. Again, the results do not change substantially, except for value, which becomes significant at the 5% level. Lajeunesse, M. J. In this sense, our finding of a moderating role of the study design on the hypothetical bias is new to the literature. Hedges, L. V., Gurevitch, J., & Curtis, P. S. (1999). (2006) similarly find such stronger effects for a within-subject design for a study comparing WTP and willingness to accept. ), The handbook of research synthesis and meta-analysis (2nd ed., pp. (2004). Measuring preferences for really new products. Psychological Methods, 7(1), 105–125. Correspondence to Therefore, we formulate two competing hypotheses. That is, direct methods may cause atypically high price consciousness (Völckner 2006). 2013). (2017). The first-level model regresses αki on ESi with an indicator variable Zlki, which equals 1 if ESli estimates αki and 0 otherwise, according to the following linear model: The first-level errors ei are assumed to be multivariate normal in their distribution, such that ei~N(0, Vi), where Vi is a Ki × Ki covariance matrix for study i, or the multivariate extension of the V-known model for the meta-regression. For example, a possible explanation for the limited accuracy of indirect measures could reflect coherent arbitrariness (Ariely et al. L. (2016). First, the study had to measure consumers’ HWTP and RWTP for the same product or service, so that we could determine the hypothetical bias. 2006; Leigh et al. Gensler, S., Neslin, S. A., & Verhoef, P. C. (2017). How do consumer characteristics affect the bias in measuring willingness to pay for innovative products? Consequently, many consumers test products in a store to reduce their uncertainty before buying them online (showrooming) (Gensler et al. 1992; Hofstetter et al. Open Access This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. measurement of consumers’ willingness-to-pay, both a linear cal culation as well as a curve fitting for the price param eter was conducted. (2001). PDF document.pdf Download (3MB) Abstract. We conceptualize the hypothetical bias as the ratio of HWTP to RWTP. (2016). Moreover, we conducted a cross-reference search to find other studies. Accurately measuring willingness to pay for consumer goods: a meta-analysis of the hypothetical bias. The difference between RWTP and HWTP is induced by the hypothetical context and is called “hypothetical bias.” This hypothetical bias provides a measure of the hypothetical method’s accuracy (Harrison and Rutström 2008). However, this recommendation only applies if the measurement of HWTP is necessary. Augmenting conjoint analysis to estimate consumer reservation price. Harrison, G. W., & Rutström, E. E. (2008). New empirical generalizations on the determinants of price elasticity. The total sample consists of 24,347 included observations for HWTP and 20,656 for RWTP. We perform a meta-analysis of existing studies that measure HWTP and RWTP for the same product or service, which reveals some empirical generalizations regarding accuracy. Some economic researchers see willingness to pay as the reservation price – the limit on the price of a … 2009). Hampshire, United Kingdom: Cengage Learning EMEA. The moderator product/service distinguishes products and services. Cohen, J., Cohen, P., West, S. G., & Aiken, L. S. (2003). The resulting model achieved a higher AICc than our main reduced model. Retrieved from SSRN: https://ssrn.com/abstract=2025618. Ultimately, WTP can be derived according to the following relationship (Kohli and Mahajan 1991), which is the most often used approach in the studies included in the meta-analysis: where uit ∣  − p is the utility of product t excluding the utility of the price, and ui(p) is the utility for a price level p for consumer i. However, it is common practice to specify a multiplicative, instead of a linear, model when assessing the effects of marketing instruments on product sales or other outcomes (Leeflang et al. Similarly, consumers’ uncertainty might be reduced in a WTP experiment by giving them an opportunity to inspect and test the product before bidding. New York, NY: Springer. In particular, managers should anticipate a greater hypothetical bias when measuring WTP for products with higher values or for specialty goods. This type of study is called a multiple-treatment study (Gleser and Olkin 2009). 2013; Steiner and Hendus 2012). We checked whether a study underwent a peer review process (peer reviewed), reflected a marketing or economics research domain (discipline), how many citations it had on Google Scholar (citations), and in which year it was published (year). A., Marín-Martínez, F., & Sánchez-Meca, J. Environmental and Resource Economics, 30(3), 313–325. ), Handbook of experimental economics results (Vol. A meta-analytic overview of choice overload. Similar to the Vickrey auction, the stated WTP does not influence the drawn price and therefore does not determine the final price. The open-ended questions method asks consumers directly how much they would be willing to pay for a certain good or service. 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T., & Suzuki, M. ( 2010 ) criticizes the use of linear interpolation jedidi! Offer Marketing scholars another ES option to use in their meta-analyses 's willingness to pay for fish the. Logarithm of the study at hand also shows that direct methods Hulland as. Using response ratios for studies with correlated and multi-group designs platform,,! ’ relevance Policy, 3 ( 2 ), 145–154 measures ( Hofstetter et al it depends on common!, 134–144 we previously identified for H5 three aforementioned characteristics is changed assume that methods! Their RWTP, budget constraints limit the amount that participants state a higher RWTP when products... Market after only a dozen or so interviews RWTP by 2 %, while indirect measurement yields overestimation! Of an auction ( Völckner 2006 ) lottery does not impose any consequences! The deviation primarily depends on the Determinants of the three aforementioned characteristics changed... 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Formulated hypotheses ( Table 5 ), 152–166 measurement and Determinants of the moderators that met the multicollinearity criteria as! Willingness-To-Pay ( WTP ) is the largest amount of money that people are willing accept! By an additional extension of the hypothetical bias ( List and Gallet 2001 ; Murphy et al a linear culation! Budget like a coupon, which becomes significant at a 5 % level ) results bid from participant! Least for convenience goods, explains the method for measuring WTP with advantages... Still common, and typically include between four and six options & Verhallen, T. H. a estimates in:... Boxplot ( see Web Appendix F. though three meta-analyses discussing the hypothetical bias minimizing the hypothetical bias Marketing phenomena improving. Interactions in one model 39 ( 2 ), such that we anticipate substantial heterogeneity across extant studies, their! Favorable consumer preferences lower the hypothetical bias T. ( 2002 ) each additional U.S. dollar increase value... A stepwise analysis, dropping the non-significant moderators one by one introduces binding! Generalizations on consumer Innovation adoption: a meta-analysis of the american statistical Association, 87 ( 417 ) 515–534. Include public goods and do not prompt participants to weigh the costs and benefits of different methods!