Hypothetical bias in stated choice experiments: Part I. Integrative synthesis of empirical evidence and conceptualisation of external validity

The notion of hypothetical bias (HB) constitutes, arguably, the most fundamental issue in relation to the use of hypothetical survey methods. Whether or to what extent choices of survey participants and subsequent inferred estimates translate to real-world settings continues to be debated. While HB has been extensively studied in the broader context of contingent valuation, it is much less understood in relation to choice experiments (CE). This paper reviews the empirical evidence for HB in CE in various fields of applied economics and presents an integrative framework for how HB relates to external validity. Results suggest mixed evidence on the prevalence, extent and direction of HB as well as considerable context and measurement dependency. While HB is found to be an undeniable issue when conducting CEs, the empirical evidence on HB does not render CEs unable to represent real-world preferences. While health-related choice experiments often find negligible degrees of HB, experiments in consumer behaviour and transport domains suggest that significant degrees of HB are ubiquitous. Assessments of bias in environmental valuation studies provide mixed evidence. Also, across these disciplines many studies display HB in their total willingness to pay estimates and opt-in rates but not in their hypothetical marginal rates of substitution (subject to scale correction). Further, recent findings in psychology and brain imaging studies suggest neurocognitive mechanisms underlying HB that may explain some of the discrepancies and unexpected findings in the mainstream CE literature. The review also observes how the variety of operational definitions of HB prohibits consistent measurement of HB in CE. The paper further identifies major sources of HB and possible moderating factors. Finally, it explains how HB represents one component of the wider concept of external validity.