Speakers: Jorge E. Araña  (Visiting professor, Centre for the Study of Choice, University of Technology Sydney)

Topic: Limits to the use of choice-based data to guide public policy: the case of interpersonal comparability

Abstract:
Both revealed and stated preference methods have been extensively used to infer consumers demand for market and non-market goods. These methodologies share the use of individual’s choices (real or hypothetical) as an informational base for the calculus of utility functions. In this work, we discuss the limits of this rationale (i.e. the use of choice-based data) in particular to construct welfare functions and to guide public policy. The empirical part of this research is focused on one of the most important limitations, that is, the inability of obtaining “interpersonal comparability” of choice-based welfare functions from the actual choices. (Sen, 1972). We explore the use of a novel technique termed “anchoring vignettes” as a valid alternative to overcome this issue. We develop and test the properties of the use vignettes to successfully estimate interpersonal comparable welfare functions in three different contexts and data sets (valuing environmental risks in Europe, estimating corruption perception measures in south America and measuring tourist satisfaction in an international resort in Africa). The results show that while in two of the data sets the use of vignettes satisfy theoretical properties and increase the validity of the choice-based data to estimate welfare functions, in the third data set elicited vignettes utility functions behaves significantly different than individuals’ own utility functions adding no improvement to standard practices. Discussion of the implications of the results for estimating normative preferences by using revealed and stated preference methods are also discussed.

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