Grantee Research Project Results
2000 Progress Report: Assessing Preferences for Environmental Decisions with Long-Term Consequences
EPA Grant Number: R826611Title: Assessing Preferences for Environmental Decisions with Long-Term Consequences
Investigators: Keller, Robin , Eppel, Thomas
Current Investigators: Keller, Robin , Guyse, Jeffery L. , Biswas, Dipayan , Strazzera, Elisabetta , Eppel, Thomas
Institution: University of California - Irvine
EPA Project Officer: Chung, Serena
Project Period: July 1, 1998 through June 30, 2000 (Extended to July 31, 2001)
Project Period Covered by this Report: July 1, 1999 through June 30, 2000
Project Amount: $181,851
RFA: Decision-Making and Valuation for Environmental Policy (1998) RFA Text | Recipients Lists
Research Category: Environmental Justice
Objective:
The main objectives of the study are to: (1) expand previous research on discount rates for monetary consequences to non-monetary consequences (e.g., environmental impacts); (2) conduct experimental studies to find out what factors have an impact on monetary and non-monetary discount rates; (3) apply multi-attribute decision analysis to examine time preferences; and (4) cross-validate and generalize the experimental results with information from professional analysts to develop sound assessment procedures that will help policy makers in the determination of the temporal perceptions of different stakeholders in environmental decisions.Progress Summary:
An experimental study was designed and conducted to analyze individuals' preferences for sequences of outcomes over time related to air quality and near-shore ocean water quality. We were particularly interested in whether temporal preferences for monetary outcome streams differ from preferences for sequences of non-monetary outcomes. We compared our results for the environmental sequences with results on preferences for sequences of health and monetary outcomes (from the participants in this study and previous research conducted by Gretchen Chapman, George Loewenstein and others). Generally, participants gave significantly lower ratings to environmental and health sequences (with equal means) that worsened over time, relative to the ratings they gave to sequences that either remained the same or improved over time. This pattern is reversed when facing sequences of monetary payments. This preference structure held for both short (5-year) and long (50-year) time horizons, and was confirmed with choice data. In other words, the generally observed preference pattern implies negative discount rates for non-monetary but positive discount rates for monetary outcome sequences. A model proposed by Loewenstein and Drazen Prelec for the valuation of sequences of outcomes was applied to the current data set and compared to the traditional discounting model. In all cases, the model that incorporated "Gestalt" features of the sequence (slope and uniformity) performed better than the net present value discounting model at predicting the mean ratings for the sequences in the different domains.Thus, we found that people have very different preferences for temporal sequences of environmental outcomes and income outcomes. This suggests that decisions involving monetary and non-monetary outcomes should not be modeled by first pricing out all outcomes in money and then discounting the monetary stream backwards to compute the net present value, using one discount rate.
We also completed a related paper on "Examining Predictive Accuracy Among Discounting Models." This work follows up on our experimental study above and earlier experimental work by others which identifies problems in consistency of preferences with any single discount rate. We ask the question: what discount rate should be used if you want to go ahead and use a discounting model? We present a methodology to analyze data from experimental surveys on intertemporal preferences. Focusing on the traditional exponential discounting model and the hyperbolic discounting model, we use different specifications to model some experimental data published by Richard Thaler. Standard measures of goodness of prediction are then applied to fitted data to select among alternative specifications. We first present our approach by applying it to simulated data. We then present a procedure for statistical estimation of the sample discount rate, testing four specifications.
We also have conducted an experiment on the "Empirical Validity of Discounted Utility for Decisions Involving Sequences of Monetary Outcomes." This work investigated whether the temporal preference anomalies found in experiments involving monetary outcomes in the present or one point in the future also occur when sequences over time are evaluated. Since our main experiment, described first above, presented sequences over time, it was important to examine similarities or differences in results when participants respond to both sequences over time and to just one point in the future compared to the present.
Future Activities:
Further study and experimentation will investigate whether or not the preference patterns observed in our earlier experiments also exist when the outcomes lead to "lives being saved" or "lives being lost." We also plan to write a paper on the application of multi-attribute decision analysis to environmental decisions involving outcomes over time. We plan on gathering information from professionals who work on environmental decisions with long-term consequences to investigate how our experimental results can guide us in the assessment of the opinions of "experts." We hope to use various professionals who provided input to projects by Decision Insights, Inc. as respondents. For example, one of those projects developed decision analysis models and accompanying software to evaluate different strategies to mitigate effects due to exposure to electromagnetic fields over time. The evaluation criteria covered a broad range of monetary, environmental, and health concerns and covered a period of 30 years. The recommended alternatives would change depending on what kind of discounting pattern is used as an input to the computer models, so it is important to develop and refine decision analysis methods for assessing temporal preferences.Journal Articles on this Report : 1 Displayed | Download in RIS Format
Other project views: | All 22 publications | 2 publications in selected types | All 2 journal articles |
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Keller LR, Strazzera E. Examining predictive accuracy among discounting models. Journal of Risk and Uncertainty 2002;24(2):143-160. |
R826611 (2000) R826611 (Final) |
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Supplemental Keywords:
discounted utility theory, decision analysis, environmental policy, contingent valuation, nonmarket valuation, decisionmaking, psychological, preferences, survey, modeling, public policy, ambient air, marine water, measurement methods, social science., RFA, Economic, Social, & Behavioral Science Research Program, Scientific Discipline, decision-making, Ecological Risk Assessment, Ecology and Ecosystems, Social Science, Economics & Decision Making, ecosystem valuation, multi-objective decision making, policy analysis, social psychology, community involvement, social impact analysis, decision analysis, decision making, incentives, environmental values, multi-attribute utility, non-market valuation, preference formation, environmental policy, long-term consequences, public values, discount rates, public policy, stated preference, benefits assessment, multi-criteria decision analysisRelevant Websites:
http://www.gsm.uci.edu/~kellerProgress and Final Reports:
Original AbstractThe perspectives, information and conclusions conveyed in research project abstracts, progress reports, final reports, journal abstracts and journal publications convey the viewpoints of the principal investigator and may not represent the views and policies of ORD and EPA. Conclusions drawn by the principal investigators have not been reviewed by the Agency.