A De-biased Direct Question Approach to Measuring Consumers' Willingness to Pay

TL;DR

This paper introduces a de-biasing method for the direct question approach to measuring consumers' willingness to pay, improving accuracy and managerial usefulness by addressing hypothetical bias through systematic assessment and correction.

Contribution

It presents a novel de-biasing procedure for the direct WTP question, validated through two empirical studies, enhancing the reliability of consumer valuation methods.

Findings

De-biasing procedures reduce hypothetical bias in WTP measurement.

De-biased approach yields more accurate WTP estimates.

Validated effectiveness through two empirical studies.

Abstract

Knowledge of consumers' willingness to pay (WTP) is a prerequisite to profitable price-setting. To gauge consumers' WTP, practitioners often rely on a direct single question approach in which consumers are asked to explicitly state their WTP for a product. Despite its popularity among practitioners, this approach has been found to suffer from hypothetical bias. In this paper, we propose a rigorous method that improves the accuracy of the direct single question approach. Specifically, we systematically assess the hypothetical biases associated with the direct single question approach and explore ways to de-bias it. Our results show that by using the de-biasing procedures we propose, we can generate a de-biased direct single question approach that is accu-rate enough to be useful for managerial decision-making. We validate this approach with two studies in this paper.