A short lesson on experimental auctions

One of the most robust findings from the research on what consumers are willing to pay for non-market goods (for example, foods made with new technologies that are not yet on the market) is that people tell researchers they are willing to pay more than they actually will when money is actually on the line.  One review showed, for example, that people tend to overstate how much they are willing to pay in hypothetical settings by a factor of about three.  That means if someone tells you on a survey that they're willing to pay $15, then they'd probably only actually pay about $5.

One way to deal with this problem of hypothetical bias is to construct experimental markets where real money and real products are exchanged.  The key is to use market institutions that give consumers an incentive to truthfully reveal their values' for the good up for sale.  I wrote a whole book with Jason Shogren on the subject of using experimental auctions for this purpose a few years back.

I recently filmed a short primer on the consumer research method for an on-line course being created by my colleague Bailey Norwood.  He graciously put it up online for anyone's viewing pleasure.