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Preference Uncertainty, Institutions and theSemiotics of Value Expression

James R. Wilson*

Abstract - Applications of fuzzy logic to contingent valuation provides an

operational way in which to represent the problem of strong preference

uncertainty. However, this work rests uneasily on a theoretical framework

of traditional consumer preference theory, and provokes a number of

questions about the internal validity of those traditional views. An

alternative view of consumer choice is proposed, mainly taken from the

cognitive science literature. Valuation of environmental goods using CV

methods use information exchange protocols (IEPs) mainly based upon survey

methods aimed at the person as consumer. Because valuation can be

sensitive to IEPs, it might be more appropriate to use IEPs that mimic

actual institutions that use citizens to express their values. Generally

these institutions give clearer signals about the role the respondent will

play in the choice process (as a consumer or as a concerned citizen).

IEPs restructured in this way could help in clarifying the status quo

condition, which in turn would permit the person to more easily explore the

effects of possible changes in the level of an environmental amenity. The

theoretical framework would argue that IEPs, time/money constraints, and

transactions costs are important determinants of expressed value. It may

be tempting to conclude that contingent valuation protocols are of limited

value in collective decision-making. This is not entirely true either.

Institutions already exist in a number of countries that attempt to deal

with many of the issues alluded to by the critics of CV methodology.

Examples in law abound where the timing, quantity, quality, and style of

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information exchanged between proponents and decision-makers are regulated

by social and legal norms. Admitting the importance of context and

protocol in the expression of values does not weaken the CV method, but

rather opens up an important new field in experimental economics and

collective choice. These fields have interesting applications to the re-

design of existing institutions that call upon citizens to express monetary

as well as other value judgements.

Keywords: preference uncertainty, fuzzy sets, contingent valuation, semiotics, protocols, institutions.

_______________________________* Professor, Département d’économie et de gestion, Université du Québec à Rimouski, 300, allée des Ursulines, Rimouski, Québec, Canada, G5L 3A1 (james_wilson@uqar.qc.ca.) Thanks to the Bureau de Doyen, Université du Québec à Rimouski for travel assistance, to Université Bretagne Occidentale for their invitation and their financial support, and to Centre de droit et d’économie de la mer for their hospitality. Thanks inparticular to Jean Boncoeur, Olivier Thébault, and to Lionel Prigent for their input. Comments and criticisms are welcome. Contact the author before citing.

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Introduction

In the book Foucault’s Pendulum, Professor Eco explores the results of

living in a world where hermetic semiotics has run amok. Three

brilliant but off-beat scholars find a fragmented text in old Latin

and French. In their spirited efforts to decode it, they develop a

theory about the return of the Templar Knights, and their ultimate

control of the world. Unfortunately for the protagonists, there

were those who believed the interpretation. Their fabrication

became a terrible reality, even though the message itself turned

out to be only a medieval shopping list. The reality that was

built was based upon faulty and corrupted protocols of information

exchange, and on the biased interpretation of the information by

each scholar. The theme reappears in a series of essays by the

same author (Eco, 1994). In the lead essay, Eco seems to argue,

among other things, that since interpretation of information is a

dynamic process with real consequences, those involved in the

interpretation cannot regard written and spoken signals as pure

public goods. Some serious attention needs to be paid to the

protocols that govern the transmission of information, because the

values which are ultimately expressed are based upon these

protocols, in which oral and written language is the essential

vehicle. Authorship, social conventions, differences between the

oral record and the written record, facial expressions, and

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temporal references may all need to be invoked to add meaning to

the information given and received. These are the types of issues

Semiotics1 deals with. Though an abstract philosophical field, it

may be helpful in adding some depth to economic debates that turn

around the use of language and its supposed power to elicit “true”

expressions of value.

One area where semiotics might be at least conceptually useful is

in the current debates related to Contingent Valuation (CV). CV

has become one of the standard analytical tools used for valuing

public goods. Although an important application of CV was in the

case of the Exxon Valdez, there are by now hundreds of CV studies.

The aim of this essay is not to review these studies, but to

suggest some important departures from the way in which the

theoretical valuation problem might be described, and the

implications that these departures have on our view of the various

institutions that use people to make value judgements. In

particular, we want to have some theoretical antecedents that are

able to accept the idea of preference construction rather than

preference revelation. We want also a theoretical antecedent that

accepts the idea that people will behave differently according to

the social role they are called upon to play. Finally, we want a

framework adapted to strong uncertainty rather than weak

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uncertainty, precisely for the reasons earlier expressed by Simon

(1955); that most decisions humans make are almost of necessity

done without the benefit (or the costs) of acquiring probabilistic

information.

Earlier work by Bishop and Heberlein (1979, 1980) focused upon

research and survey protocols that were thought to eliminate many

of the major interpretive biases of earlier studies. This work was

subsequently criticized by Hanneman (1984; 1990) as well as by

others who sought to attach theoretical context to the protocol.

The theoretical foundation used in these cases was random utility.

These theoretical frameworks assume that the subject has a well-

behaved (twice differentiable, concave) utility function which is

known to him, but which is unknown to the researcher. The dominant

protocol used today (example Carson et al 1994) is some variant of

the dichotomous choice or referendum method, which seeks to uncover

(or recover, or reveal) pre-existing preferences, and the value

expressions associated with these preferences. CV has received a

reserved but nevertheless positive endorsement by a number of

economists, including the commission responsible for evaluating the

method (Federal Register, 1989). Their particular recommendations

called for an improvement in the way information is communicated.

The NOAA panel recommendations have been criticized both from the

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perspective of the technical recommendations they made, but also

upon the premise that subjects conform to the neoclassical model of

rational choice (Spash, 1998). Randall (1997) concludes that the

evolving standardization implied by the NOAA Panel will result in a

search for and development of other methods which will capture the

intent of the public without as much direct reference to the

theoretical foundations of economics.

There are also vigorous detractors of the CV method itself (Diamond

and Hausman, 1993, 1994). Most challenge or at least question the

decision-making capacity of consumers, at least in the way

described by traditional consumer choice theory and practiced by

both empirically by both psychologists and economists. The

“economic” stream of thought initiated by Simon (1957; 241-279)

seems important to this debate, but has been largely ignored by

those involved, except as an argument detracting from the use of

CV. In fact, the work of Simon on rationally bounded choice has

received little attention among those interested in CV methodology,

even though Simon’s work offers the clearest theoretical

foundations explaining why CV as it is now practiced might not give

the desired results. Slovic and Lichtenstein (1983) discussed the

implications of the empirical results of preference reversals,

citing that a radical modification of existing preference theory is

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called for. In a follow-up article, Tversky et al (1990) cite a

number of violations of some of the most basic axioms of choice, as

well as the failures of descriptive and procedural invariance in

studies of choice. These they claim give rise to preference

reversals, which are prevalent enough in empirical studies to make

us doubt the existence of well-defined consumer preferences.

Fischoff et al (1980) as well as Slovic, et al (1993?) suggests

that in certain cases, the protocol used does not reveal

preferences as much as it constructs them. This is especially true

if the subject does not have a clear idea a priori what to think about

the questions being posed to him. Fischoff and Furby (1988)

discuss the effect of risk and uncertainty in the expressions of

value. In summary, the verdict of some in the psychology

profession is that economists should attempt to revise their theory

of preference to account of these realities.

Some economists have rejected the pertinence of CV, based upon the

findings of the authors above as well as on other grounds. Some of

these criticisms are still openly debated among economists.

Kahneman and Knetsch (1992) concluded that they have found

embedding or part-whole effects and claim to have found an effect

of the purchase of moral satisfaction, or what has been elsewhere

called “impure altruism”. Randall (1997) claims that embedding is

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a general economic phenomenon and consistent with received theory.

The purchase of moral satisfaction arguments appear to be strongly

held by some, such as the NOAA Panel, and rejected by others

(Nickerson, 1995) as unproven; the measure being an artifact of

the protocol used.

Still other economists (Vatn and Bromley, 1994; Gowdy, 1996) have

argued that the whole quest of discovering or recovering values of

environmental goods is unnecessary and perhaps even misguided or

harmful. These authors cite in particular a number of difficulties

with the current methods, such as problems of cognition,

incongruity, and composition that render the correct interpretation

of these values difficult. Add to this the institutional process

of evolving procedural rules which have sprung up around the NOAA

report, and these authors claim that the process of eliciting

values hypothetically may simply be “it’s own reward.” However, by

far the most interesting results come from psychologists and the

allied economists examining the same issues. They have, since the

work of Simon, called for a re-examination of the foundations of

consumer choice. Such calls of course seem to fall directly into

the hands of the detractors of CV, because they question the

validity of the rational choice paradigm in CV exercises, and

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therefore the reliability of consumers to express context

independent monetary values.

These have been (re)addressed in part by recent work applying fuzzy

set theory to CV exercises (van Kooten et al, 2000; Krcmar and van

Kooten 2000). These approaches, inspired by the work of Li and

Mattsson (1995), suppose that not only are preferences unknown to

an external evaluator, but that preferences are not even “crisply”2

known to the subject himself. Fuzzy representations of the choice

problem are marginal improvements in the way we model the problem

of consumer choice in two ways. First, the theoretical argument

does not rely upon weak uncertainty criteria, and can accept strong

uncertainty more easily, which is more believable, although the

evaluation method could be modified to recover subjective

probabilities. Second, the “uncertainty” is not only what the

outside observer expects to see in the behavior of a randomly

chosen subject (the random utility notions) but also upon what the

subject might feel about his own (constructed or pre-existing)

preference structure. This already is a major step in the

direction of admitting the possibility of the non-existence of

stable preference structures.

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This paper takes the discussion farther down this road. Starting

from our comments on these recent developments, we develop an

argument for the a priori non-existence of preferences for most types

of unusual environmental choices. That is, most consumers do not

know how much of an environmental service they are consuming until

they really think about it for an extended period of time, and they

may not even know exactly what part of their disposable income and

time is consumed in the gathering of the information necessary to

make the consumption decisions they make. They may know that

having less or more of an environmental service may imply changes

in their real income, but the costs of knowing the effects might be

greater than the effect itself, which may lead to guessing, non-

response or refusals to respond. Further, we argue that most

consumers understand that not only is information important though

costly, but information exchange protocols (IEPs) that have social

and economic meaning are important as well, and can affect the way

in which they will construct a preference that has never existed

before. In particular, institutions of deliberation and value

expression which already exist (while imperfect) provide a

necessary context for people called upon to express values, or to

establish their role as citizen making collective choices and not

individual choices. These existing and emerging institutions also

deal more effectively with a number of other concerns raised by the

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NOAA panel, by providing detailed protocols governing the exchange

and use of information.

The criticisms of CV do not seem to be based upon the idea that the

results might be context specific and based upon preference

construction, but that CV specialists with few exceptions may not

deal adequately with the person who is possibly making a collective

choice (Sen, 1995), as though the person was deciding as a

representative citizen. This is in part because the protocol used

often presents the environmental good as a commodity that should be

individually valued in a face to face interview, often with little

or no information exchange3. Further, CV studies may be running up

against the purely technical constraint of not being able to

prepare a subject adequately for the valuation question within a

timeframe that is reasonable for a one-on one questionnaire format.

Finally, I argue that the real place of CV is still to help those

serving or using institutions already in place, the civil and

criminal courts as well as the press and the policy arenas, in

arriving at monetary values of benefit and damage that have a

richer significance; hence the use of semiotics in the title. In

this regard, valuation protocols might be imagined that mimic, or

at least provide a closer contextual reference to, actual

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institutions and protocols of information exchange that often lead

to expressions of value by citizens. When the valuation problem

is viewed this way, this might mean that CV exercises should be

imbedded in broader contexts such as town hall meetings, citizen

juries or mock trials, or during Internet conferencing after the

airing of in-depth documentaries covering an announced issue. Such

approaches will require that we revise our views on how individual

and social preferences are formed. It also requires us to possibly

imagine other ways to effect CV studies.

Fuzzy Rational Choice Without a priori Preferences

Suppose that someone visiting the region of Brittany in France is

represented in Figure 1. He is looking to enjoy the quality of the

saltwater environment in Brittany, as well as some of the other

things France is famous for. This person would probably accept

that for any level of income, and regardless of what he did or did

not do in his spare time, he would “prefer” more water quality to

less as a matter of principle, especially if he did not have to pay

for it. Of course, this is what we also suppose about other goods

as well. So when we say that there are no preferences, we are not

saying that more quality and more of other goods are not

progressively more important. We reject, however, the idea of a

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twice differentiable continuous utility function from which we

might see pre-existing and well-defined marginal rates of

substitution.

Nelson and Winter (1983) offer a similar point of departure, based

upon the notion of technique and firm behavior. These authors

stress that at least for firms, their method of production cannot

be considered to be a point on an iso-production curve. Observed

techniques are the result of an often difficult process of trial

and error, as well as of imitation and innovation. Moving from an

established point is not smooth, costless, and devoid of

consequences. Similarly, consumption points or “techniques” are

not smoothly arranged in consumption space, nor are they

continuous, nor are they necessarily compact. So in our example in

Figure 1, for a consumer feels he is at “A”, more or less, the

proposal to move away from A within the box is not obvious. Points

outside the box are even less obvious. Moving back by the same

route is not guaranteed either. I have drawn a block around “A”,

which will be explained as the argument is built. At the frontiers

of this box, the person is sure that the points outside of it are

not members of points that are “like A”. Moving away from the

letter “A” the degree of membership declines, and beyond the box,

the points outside are definitely not members of “A”; these points

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are crisply defined as regards the membership function. This

implies three things. He is not entirely sure that all the points

in the box can be differentiated easily. Second, he knows that the

points outside the box are crisply different. Third, without more

information about how to get to other points outside of “A,” the

subject is sure that he knows little about what he would trade off

in getting to other points. Within the box, the other points are,

for him, “sort of like A.” For simplicity in this presentation,

assume that the person in question “carries his uncertainty with

him” if he can be convinced to consider another point. He might

learn how he might get to another point through coaching and

discussion, but the person never becomes fully enlightened about

where he is consuming because it would cost too much to obtain the

information. He can, however, change the size of the box through

learning how to discriminate between bundles of goods and groups of

bundles. As he learns more about where he is, the box is reduced.

Learning can reduce strong uncertainty in both dimensions.

We are therefore granting the position of the constructivists, like

Diamond and Hausman (1996) and Gregory and Slovic (1997). However,

rather than arguing for not using contingent valuation or for using

other methods, it may be interesting to try and construct (as

others have called for) another way of looking at choice that is

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able to accept parts of the present theory and the empirical

evidence of the social psychologists and economists. No one

recently has come closer to doing this on a practical level than

van Kooten (2000). Therefore, I use some of the ideas of van

Kooten and Simon (1955) to push that discussion along.

However, unlike van Kooten and Simon, we start the discussion at

the point before the person is called upon to choose. Figure 2

proposes what seems to be a reasonable starting point. In the

diagram, M is the amount of goods and services that a person could

buy with, say a year’s salary at a fixed price vector for the goods

without transactions costs. Transactions costs come in the form of

time and money, but in this simplified version the person knows the

opportunity cost of his time, leisure time is valued at the same

rate as his work time, and at least in this part of his life, he is

at equilibrium between the leisure time required to consume the

market and non-market goods he has, the time consecrated to work

for wages, which are spent on the goods at a constant price index.

For this reason, we can assume that M0 is a frontier beyond which

it is not possible to consume, and therefore values beyond this are

not members of the set of possible consumption points. The part of

real income consumed by transactions is strongly uncertain, mainly

because of unusual and unforeseen transactions.

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In this analysis, the environmental amenity does not cost anything

explicitly, and is even exogenous to the decision making process.

The person may have unconsciously moved to a place and stayed there

because of the environmental amenities, but he may have never asked

questions about exactly why he is there. Therefore, we might

assume that he has strong uncertainty about the level of

environmental goods he is consuming. He might be able to define a

frontier beyond which he is definitely not consuming (Q1)(imagine

comparing the quality of the saltwater in the Bay of Brest with

that of, say, Glacier Bay in Southeast Alaska). He also has a

fairly good idea that the quality he is experiencing is better than

what is found in other seaport towns of Europe (Q0). However, the

uncertainty is still “strong” in the sense that probabilities for

different states cannot be determined. Nor, as Simon points out,

does he even want to determine them, because this would cost time

and money. Therefore, the boundaries of strong uncertainty in the

dimension of environmental quality might be expected to be larger

than those experienced for the real income.

From this information we might construct, not a bivariate

probability distribution (probabilities do not exist) but rather a

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membership function. In this case, the membership function might

be built using the following construct.

For a given time budget T = Tw + Tl + T +T,

where time is devoted to work (w) leisure (l), transactions ()

and education (), the real income at a constant 1xn price vector

P , and an nx1 vector X is generally:

M = PX = wTw

M0 in Figure 1 is the real income without time spent in education

or with time expended on transactions. It corresponds to a

distribution of income and leisure time without reference to

transactions costs. M1 is the real income in the case where time

and income are used to deal with transactions. This amount is

knowable but it takes time and money to know that too. We now have

enough to sketch a membership function. Van Kooten et al (2000)

states that a fuzzy number is a set F defined on the real line with

the membership function UF(x) [0, 1]. By similar reasoning, we

can define the set for the case before us as UF(M,Q) [0, 1]. At

least one value by convention is set at 1 and all other values have

a value of between 0 and 1. The membership function can be

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symmetric or asymmetric. As an example only, suppose that UF(M,Q)

is symmetric and linear in both Q and M.

The membership function would then be defined as:

(Q0 + Q1)/ 2 = f

(M0 + M1)/2 = g

UF(M,Q) = 1 at (f, g)

< 1 ; at M1 < M < M0 and Q0 < Q < Q1;

0 otherwise.

If the function is linear in (M, Q), the limits of the function are

also defined by planes formed by ridgelines and the base, so that

for all combinations of (M, Q), it is also true that 0 < UF(M,Q) <=

1.

Why is it important to discuss consumption under strong uncertainty

before addressing fuzzy preferences? Can we not say the same thing

simply by starting with fuzzy indifference curves? We cannot.

This is because an important part of the current debate is not only

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about preference uncertainty, but is also about the role of IEPs in

forming these levels of uncertainty and in shaping the preferences

upon which values are expressed. A meaningful discussion about

preference uncertainty needs to address how IEPs engender or reduce

uncertainty, and how IEPs shape preferences and ultimately WTP

functions. Fuzzy set theory might help us do that, but not cast as

fuzzy indifference curves, but as fuzzy consumption points. This

way, fuzzy sets may suggest some useful heuristics for cognitive

studies. The value 0 can be taken to mean “not sure at all that I

am consuming (M, Q)”, to “almost 100% certain I am consuming (M,Q)”

(the value 1).

Let us be optimistic and express a bias about education4. Before

education, the person already experiences uncertainty about his

consumption of environmental goods per period of time. He may not

even want to know more precisely what he is consuming, because of

the suspected costs of doing so. If the costs of knowing seem to

be reasonable, then the person may want to learn more about where

he is. This is because learning could reduce uncertainty and might

even increase his real income. In Figure 2 we show an example of

the old membership function. We also show a case where an

investment of time and money in education on environmental issues

reduces the strong uncertainty around consumption of all other

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goods and services, and reduces the level of uncertainty around the

environmental amenity as well (shaded area). The characteristics

of the membership function are essentially the same, except that

the area of the base of the function reduces. We would say that

for a given expenditure of time and real revenue on education, ΔCε:

Δ [(Q1 – Q0) * (M0 – M1) ] / ΔCε < 0

Δ2 [(Q1 – Q0) * (M0 – M1) ] / ΔCε2 < 0

This suggests that the marginal costs of reducing strong

uncertainty are increasing.

However, knowing more precisely where one is constitutes only one

step in the process of valuing something. Farrow and Larson (1995)

offer the idea that the value of passive use to a population might

be captured by looking at the demand for information expressed

through the opportunity cost of time spent watching broadcasts.

The demand for information is surely an important part of the

valuation process, but it may only play a role in helping people to

discriminate between groups of possible states contained in a

membership function. It may by itself say little about the

relative values attached to the possible states.

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IEPs and institutions by which values are expressed are attempts to

engage someone in a process of information exchange which has a

strong element of education. The immediate interest of this

process to someone is to be able to determine more precisely where

he is with respect to other points. Knowing where one’s position

is constitutes the first and necessary step to determining where

one might go. The person accepts to bear a slight increase in

costs, in order to reduce the membership function through learning.

This is described by a slight reduction of all other goods and

services that he purchases. Financial incentives associated with

an IEP are meant to share the cost burden of the learning process.

The reduction in the membership set is of primordial importance in

the valuation of an environmental good, because it permits the

subject to distinguish “crisply” between where he is at and other

possible consumption points. No explicit assumptions need to be

made about how the membership function shrinks: The subject might

focus down on the lower bound or the upper bound. The bounds might

change as well. However, the role of most IEPs used by specialists

of CV is to at least leave the impression that the subject knows

better where they are at the end of the process than they did when

they started. If the information obtained is not at all useful in

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reducing strong uncertainty around the amounts of goods and

services consumed, then the relevant membership set after the

exchange of information is unchanged. Having said that, we can

also imagine IEPs designed specifically to introduce uncertainty in

the minds of an evaluator, thereby making it impossible for him or

her to express a value with clarity.

The Other Feature of IEPs: Creating and Comparing Attainable

Membership Sets

Information exchange protocols can also help subjects identify

other possible membership sets and allow comparisons to be made

based upon the protocol used. To show this, let us consider a case

where the uncertainty is so strong that the validity of the value

expressed is in question. Looking at Figure 3, if the person in

question really has a membership set A that covers A’,B,C, and D,

he may not be able to compare the three positions and offer a clear

answer to a valuation question. This is because all these points

fall, to varying degrees, within the membership set. Such a

situation might provoke zero CAP or wild guesses. Alternatively,

if the level of strong uncertainty is reduced to smaller levels, it

becomes increasingly possible for the subject to make crisp choices

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between different uncertain states. This process of helping

subjects to distinguish points is not an objective uncovering of

preferences, but is subjective in nature, and involves preference

construction, based upon the institutions and IEPs used. For

simplicity, I have assumed that strong uncertainty around the

different points is the same, though they need not be. In law for

example, there are excellent examples of where IEPs permit and even

favor the elicitation of “reasonable doubt.” To make this point

more forcefully, I have fabricated an example based on the Exxon

Valdez case. Suppose we are looking at two CV analyses related to

a similar case: one that BigOil lawyers would like to see, and

another that the lawyers for the Department of Justice would like

to see. Although nominally both approaches use the same technique,

there are differences in the way information is managed in both

cases; there are two different types of IEPs. In the Justice

analysis, strong uncertainty is reduced from A to A’, allowing a

comparison between A’ and B. Then a proposed bid is made (WTP), in

an effort to determine C, the status quo welfare under the new

program controlling for oil spills. Justice lawyers are hoping

that despite the errors in estimation, the WTP is scope dependant,

suggesting that indifference curves are steep, so that people on

average can be seen to pay more for progressively less damage

possibility. Of course, the bigger the crisp distance between B

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and C, and the smaller the amount of strong uncertainty, the larger

the average WTP will likely be. If by some chance the analysis is

able to reveal apparently sincere WTP which is very large, then

lexicographic preferences can be claimed.

BigOil lawyers want to use an IEP to raise doubts about the real

differences between the welfare of the subject at B and the welfare

of the subject under the new policy (D). They want the

indifference curves (or at least the ones they imagine out of the

two points they create) to be as flat and as straight as possible.

That way, insensitivity to scope might be claimed, and the person

in question will be more prone to guess on a smaller WTP, or a zero

WTP, which will add to the difficulty of detecting sensitivity to

scope. This is done essentially by furnishing information that

gets the membership sets of B and D as close to each other as

possible. Under this IEP, there may be no crisp response zone.

The constructivist position on preferences may lead us to the

conclusion that rules of conduct for CV do need to be developed,

not because we do not trust the work done by university scientists,

but because we cannot trust any expert testimony to be wholly

objective. Much time has been spent doing CVs that conform to NOAA

guidelines, with little apparent deviation of major results. But

the acid test for the NOAA guidelines will be whether they give

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enough guidance on IEPs for CV analysis to be useful to the courts

and jurors when they deliberate on analyses performed by litigants.

In thinking about preference uncertainty, IEPs, and how they might

relate to one another, it may become important to describe the

“before” and “after” uncertainty positions of the subject in

stages. The subject may not decide along a fuzzy set corridor with

a Hicksian demand curve at its center, as in the work by van Kooten

et al (2000). The subject might drag his/her uncertainty from

point to point, and the membership sets around those points as well

as the points themselves might change radically, according to how

information is presented, and what the rules are of exchanging this

information. Therefore the major departures here from other

literature are that:

1. IEPs help the subject have a better idea about his own status

quo consumption point, thus enabling him to distinguish

different states.

2. The protocol used can either help or hinder the subject to

distinguish from the status quo.

3. IEPs may enable the subject to develop a preference statement by

indirect reference to a third point that he does not explicitly

know about.

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Provoking Protest with IEPs

It is possible that that some protocols might provoke a similar,

though exactly opposite type of response by misjudging entirely the

effect of the protocol upon the subject. In Figure 4, the protocol

used focuses the membership set to A, and then Q1 is proposed

through a series of policies. The subject, for example, might

believe that the policies proposed would bring about a

deterioration of environmental quality, whereas the analyst is not

aware of this effect. If A is to the right of Q1 and a WTP

question is offered, we would expect it to be rejected, if no

negative values of WTP are entertained. The subject would say that

he should be indemnified for the deterioration he is presently

experiencing or would experience. Fuzzy approaches are useful in

that Willingness NOT to pay is more easily modeled. Allowing for

negative willingness to pay could be a central part of an IEP.

In an IEP which is highly prejudicial to declines in quality, a WTA

might be provoked which would be difficult to distinguish from a

lexicographic response (the move from A to C). This is what

lawyers for environmental groups would love to see, if not in their

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CV valuations, at least in the attitudes of a jury during a trial.

Although WTA seems to have been eliminated from the policy

discourse by the NOAA panel, a CV analysis for the opposition using

WTA a decline in environmental quality would ideally be designed

such that the status quo membership set with reduced quality (D)

was as close as possible to the new welfare position, and as fuzzy

as possible, to make the WTA index inconclusive. Such an IEP might

be thought to provoke as well insensitivity to scope, which might

be interpreted in this case as a form of Buchanan and Stubblebine’s

(1962) “Pareto Irrelevant Externalities.” Although this notion is

roundly criticized by some economists as ad hoc, provoking that

result may arguably be the bread and butter of defense lawyers in

tort cases, just as avoiding the result is the bread and butter of

tort lawyers. If preference construction is sensitive to IEPs,

it may again be a case where social rules are necessary to better

guide CV valuation.

Consumer or Citizen?

IEPs might also instruct the subject as to how he should respond in

relation to the social or political context of the question. This

might also affect WTP results. Sen (1995) and others suggest that

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we cannot assume people value all goods as commodities, nor can we

say that they express themselves as individuals. Questions

stressing contributions (implying that there are other contributors

as well) seem more in the spirit of Sen’s ideas. Also, NOAA

recommendations notwithstanding, if citizens decide on punitive

damages in courts of law, why should these expressions be any less

valid in CV studies? Part of the answer to that might be found in

the arguments we have put fourth so far.

Proponents of CV argue that if CVs are done “correctly,” the

results are consistent with welfare theory. Opponents of CV claim

that no matter how objectively one tries to measure preferences,

they are never entirely objective because preferences are

constructed during the process of CV. The problem is that both of

these positions are trivially correct. Economists, especially in

league with other experts, can play a sample of the population just

as skillfully as a jury is played by a good trial lawyer.

Therefore, for CV to have any relevance legally, recognized and

generally agreed upon procedures need to be put in place, much like

the procedures codified by NOAA. Unfortunately, however, our

knowledge of how people value things, and the range of possible

valuation and analytical tools will continue to grow, while the

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NOAA recommendations will remain a static benchmark for one

particular approach to CV.

Discussion

If the choice process is as we have described it, then there are

four propositions that we might be able to make.

Proposition 1: Correctly framed CV studies may give clues about

public opinion regarding values in a collective choice context.

One of the issues not discussed by the detractors of CV is the

importance of “starting the discussion.” It is difficult for

most individuals to focus on and discuss environmental values, for

exactly the reasons explained by authors in the cognitive sciences.

However, properly framed and explained as a collective choice

problem, declines in disposable income to have more of an

environmental good may be the clearest discussion starter one can

make. We might also dispute the idea common in much of the

literature debunking CV analysis that these expressed values have

to be “pure” cost-benefit decisions. Expressed values of WTP and

WTA have in the past almost certainly carried signals and meaning

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other than money-goods trade-off, and perhaps they should.

Citizens involved in such a process might identify their role more

as juror than as consumer, and are therefore certainly in

“collective choice mode” despite the orientation of the

questionnaires towards individual consumer choice. J.R. Commons

(1924) argued in the essay “Mechanisms, Scarcity, Working Rules”:

“The courts in their decisions endeavor, by means of common rules,

to make nominal value or prices represent, as nearly as

practicable, the psychological value or anticipation, and the real

value, or quantities of commodities and services. Their goal is a

scheme of ‘reasonable value’.”

If respondents approach the CV questions as citizens and not

consumers, they may be trying to establish “reasonable value.”

Expressed values of this kind have powerful symbolic importance

which is even explicitly recognized by the courts (for example, see

ATLA, 2000). In the reported case, twelve jurors awarded 145

billion dollars, most of it in punitive damages, to injured Florida

smokers. This was the largest punitive verdict ever given in the

United States to date. Even though it will be contested and

possibly reduced, the institutional signal to tobacco companies is

abundantly clear, and appropriate adjustments in the way these

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firms conduct business and litigate their cases will certainly

change as a result, regardless of the final settlement. Sen

(1995) sums this up using a simple example of his willingness to

pay 22.50$ to avoid the effects of the Exxon Valdez disaster. He

points out, it seems rightly, that this might be what he as a

citizen is willing to pay to avoid the disaster as long as others do the

same thing. But this question has nothing to do with what he

believes Exxon should or should not pay for its negligence or

error. WTP may not be the same thing as WTD (willingness to

damage) for perceived egregious behavior or WTF (willingness to

forgive) in the case of a genuinely unintentional accident.

Proposition 2: CV studies are not free from the influence of the

protocol used.

We have given a theoretical reason for explaining why if

preferences do not exist a priori, that different CV protocols, even

minor variations, will create WTA and WTP values that are different

depending on the protocol used. The length of time of the

interview, the way in which conflicting information is presented,

the time for discussion with other citizens after and during

deliberation, the ability to take notes and to ask questions, and

of course the way in which debate is moderated and decisions are

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reached whether individually or collectively, may all affect the

values that ultimately come out of the survey. This has been

discussed in Schkade and Payne(1994). In particular, they

discovered as have other authors before them that when verbal

protocol analyses are used with a traditional CV methodology, only

a modest percentage of the sample can be thought to have used cost-

benefit types of paradigms to assign value. In addition, the

values that are assigned may be based upon the budget available to

“worthy causes.” Values may also be assigned for symbolic reasons,

or based upon the assumption that the subject should do his or her

“fair share.”

However, these authors in particular then conclude that CV evokes

constructed preferences rather than well-articulated preferences.

That the preferences are constructed means that values elicited

from these preferences will be greatly affected by the context of

elicitation. This has led some authors (Tourangeau and Rasisnski ,

1988) to argue that context effects are not just artifactual but

are also related to the attitude structure of the individual and

the process of answering attitude questions.

An institutionalist response to these discoveries might be one of

complete agreement and lack of surprise or concern. Values indeed

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are based upon context-specific preference construction, and so

what if they are? If we grant this, and if researchers wish to

continue experimenting with exercises in value expression, then it

may be worthwhile to examine institutions that already exist that

use the opinions of citizens, in order to develop methodologies

that reflect the best elements of these institutions. One source

of inspiration might be any legal system that uses trial by jury.

Many of these institutions have complex rules governing how a

citizen can participate, how they should interpret different

information, to whom they can discuss matters of the case, and when

they can, and so on. Some rules, like the rules of jury selection

or voire dire, seem designed specifically to choose citizens who have

no preferences on an issue. This is an interesting divergence of

objectives in evaluation that might be explored. In traditional CV

analyses, random samples are chosen, usually with attempts to be

representative of the population, the information is collected

during relatively short interviews, and statistical analyses are

performed using variables to control for biases. In jury

protocols, selected citizens should ostensibly have no preferences

à priori. Then, their preferences are constructed during a trial that

usually is adversarial in nature. Information, exchanged during

depositions between the litigating attorneys, is then transmitted

to the citizens under highly controlled proceedings. Jurors are

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coached by both the judge and the attorneys about how certain facts

might or might not bear on the case. Rules of admissibility of

evidence are also important in this regard. Jurors are also

instructed by the judge before deliberation as to their

responsibilities. Most proceedings in the U.S. require jurors to

take an oath. Clearly, in these cases the juror might be expected

to have little doubt as to his/her role. However, most CV analyses

design their own studies in an effort to uncover determinants of

pre-existing preferences, by transmitting as objectively as

possible an “information packet.” One result of such an approach

might be to provoke responses from people as though they were

citizen jurors. In other words, rather than measuring impure

altruism, certain parts of the sample may actually be expressing

juror behavior. Therefore, the fact that any one protocol is

context specific is perhaps not as much of a problem as the fact

that the traditional CV protocol might be ill-adapted to the types

of issues being discussed. One possible solution to the question

of context specificity is to mimic an institution that already

exists, where the CV questionnaire is an integral part of this

process. There are perhaps two reasons for doing this. First, it

cannot be assumed that, for all of its faults, the institution of

trial by jury (for example) is devoid of economic meaning. On the

face of it, most institutional innovations might be thought to err

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on the side of developing schemes of Common’s “just values”.

Second, if evaluations are context-specific, it may be better to

use protocols that already have some institutional legitimacy and

allow more freely for expressions of value.

Proposition 3: CV studies using hypothetical protocols might give

clues as to how to change real institutions and the protocols

governing value expression.

A study of the various internet sites having to do with collective

decision-making 5 reveals what seems to be important activity

regarding forums designed to give value opinions. Among the forums

currently used are “Town Hall” meetings, which may be organized by

universities and news networks. In addition, informal web-browsing

and questionnaire sessions after documentary films have come

increasingly into use. In Europe, and increasingly in the United

States and Canada, the “citizen jury” is coming into use, usually

organized by universities and non-profit foundations. None of

these seem to marry the deliberative process with the expression of

monetary values. Furthermore, the citizen jury may not always

give results that are usable in other contexts. Experimental CV

might be used in a citizen jury context. In particular, the

effect of advocacy and the adversarial nature of real court-rooms

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might be tested to see to what extent that protocol will give

evaluations which are divergent from a regular face to face

questionnaire.

In addition, court reform is a subject of increasing importance in

the U.S. The rules for jury selection at least in the United

States are complex and at times trying for the person asked to

participate. The system seems to select for a person who has the

least amount of expressed bias for either side of a debate. On

the other hand, jury members are often instructed not to talk about

a case before deliberation, cannot take notes, and cannot often ask

questions themselves. The treatment of jurors by the courts, and

the tampering of jurors by the opposing parties appear to be

serious shortcomings of the real institutions now in use.

Experimental CV may be useful in suggesting protocols which make

better use of juries in real settings.

Proposition 4: Revised CV studies might help to better understand

the political economy of collective choice, including possible

aberrations.

A theoretical framework that starts with the non-existence of

preferences, or that admits protocol-induced preferences, allows us

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to explain a number of behaviors that are commonly seen in real

life. For example, a large part of what we call policy is made

based upon institutions that use a limited number of people

expressing their opinions or values after an exchange of

information. Often, individuals affected by certain types of

pollution or degradation of the environment are limited in number.

Proponents and opponents on an issue are involved in rhetorical

exercises aimed at gaining the confidence, sympathy, or complicity

of deciders or the affected parties. These exercises can extend to

not revealing correct or sufficient information, to using “fait

accompli” types of tactics, as well as to quietly pay off a victim

in order to avoid a more reasoned decision in a more public

setting, which might have much more symbolic weight. These are all

behaviors that could lead to the formation of uniform non-convex

preferences on the part of those deciding an issue, or at least the

inability to decide because little or no information has been

exchanged. Burrows (1994) concludes that non-convex preferences,

while they may exist in policy relevant regions of a pollution

analysis, summarizes that these non-convexities extended to a

population would likely lead to convex damage functions and

therefore no blockages to Pareto relevant negotiations. However,

inherent in this analysis is the idea that most policy is made by

the decisions of large groups of people, which may not be true.

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Second, such a conclusion supposes that persons involved are not

affected by IEPs, which is not entirely true either. Economists

should be open to the idea that one way of dealing with the cost of

CV analyses extended to a large group of people is to fall back

upon the principle of a smaller number of unbiased citizens. An

IEP of this type could potentially be corrupted. However,

selection processes are developed and can be developed that

minimize the likelihood of this occurring.

Conclusion

This essay describes a theoretical framework which would

accommodate the idea of preference construction and value

expression under strong uncertainty. Strong uncertainty may be

best modeled using fuzzy set theory. The added advantage is that

membership functions seem to be adapted to strong uncertainty,

which can in turn be relatively easily measured by non-parametric

means from questions pertaining to the certitude expressed in value

formation. Particularly attractive also is the fact that

willingness not to pay can be modeled as well. Preference

construction might be better understood by borrowing the neo-

Schumpetraian idea about the non-continuity of techniques in

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production (consumption), the role of learning in the

identification of other production (consumption) points, and the

inherent uncertainty about successfully producing (consuming) at

these points. This framework is based upon the idea that

preferences are not well-defined to begin with, and that preference

construction is the product of both learning information and the

protocols used for learning. An arbitrary IEP, properly

administered, can reduce the strong uncertainty around a

consumption point sufficiently to allow the person to make a choice

between where he/she thinks they are and a proposed crisp

alternative. An improperly administered protocol which does not

allow the subject to more precisely establish the point at which he

is consuming will result in an expressed value which is a guess,

refusal to answer the question, or zero bids, all with important

levels of expressed uncertainty. Faulty reasoning and heuristics

used in valuation may be related to the (lack of) exposure the

person has had to valuation problems in the past. It is therefore

important for researchers to be realistic about how much

information can be assimilated and processed using a survey method.

Although a survey format administered to large numbers of people is

a standard approach, the environmental problems confronted by many

communities may be more urgent than the time reasonably available

for survey methods.

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If preferences are malleable to IEPs, researchers also need to

worry about the question of how “truth” is expressed in valuation

exercises. Here, researchers might find it useful to look at

adversarial approaches that use the written and oral input of

citizen juries and town hall participants.

Learning before being asked to value something as a citizen plays a

very large role in the institutions that call upon citizens to

decide issues. In various court systems in countries such as

France, the U.S. or Canada, to name just a few, jurors are coached

or reminded of their duties. There are a number of other rules

used by the courts to control how preferences get constructed,

clearly defining the role of the participant as a citizen making

decisions in the interest of society. Such an exercise could also

involve both WTP and WTA questions embedded in the process, along

with opportunities for citizens to produce resolutions on the

issues before them.

Institutions that already exist, especially the civil and criminal

court system, may be an important source of information about how

to re-structure valuation exercises in a way that converges upon

the “truth.” However, those who have worked in these same

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institutions have noted the many frailties of using citizen input,

and argue sometimes strongly on the need to reform the way jurors

are used. At the same time, a number of other types of forums for

using citizen input are in various stages of experimentation. CV

research may be very useful in suggesting ways to better organize

and use people for analysis and value expression. However,

practitioners of CV will likely have to move beyond conventional

survey methods, as environmental problems become more complex, and

as the demand for well-reasoned values of damages and benefits

become more acute. Doing so may force us to re-examine the

structure and function of institutions we presently use to help us

express value, which will force us in turn to question anew the

theory of preference embraced by orthodox economics.

Endnotes

1. Semiotics, a field founded by the American philosopher Charles

Sanders Pierce, deals mainly with the triadic relation between words

and language, the subjects described in oral and/or written signals,

and the interpreter of the written and/or spoken word. The relation

between semiotics and economics has been tenuous, except for the fact

that some of Pierce’s ideas also had to do with the role of language

in the formation of uniform habits and conventions. These ideas seem

to have influenced the theoretical writings of the early

institutional economists.

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2. Using fuzzy set theory also involves the adoption of some new terms.

The term “crisp ” is used to denote bivalent logic, whereas the term

“fuzzy” denotes a multi-valued logic. For example, van Kooten et al

provides a definition of “crisp sets” in the following way : An

element x of the universal set X belongs to an ordinary or crisp set

A by way of a characteristic function Ua such that Ua = 1 if x

belongs to A, and Ua = 0 otherwise. A fuzzy set, however, (call it

F ) is also described by a characteristic function but that function

maps over the closed interval [0,1] instead of just over 0 or 1.

3. I use the term ‘exchange’ here to mean a process which allows for

passage of explicit and tacit information among those who may

ultimately be asked to make an evaluation or decision. The acronym

“Information Exchange Protocols” or IEPs, means the entire procedure

and context within which a person will be asked to express value. It

could be a written questionnaire, an oral questionnaire, a town hall

meeting, a debate, a civil or criminal trial, or an elaborate focus

group meeting.

4. We will use the word “education” as the result of any one of a number

of IEPs. The educational process may shape not only the crisp

boundaries around a point, but the desire to possibly consume at

other fuzzy points.

5. http://www.ajs.org/jury2.html; http://www.ajs.org/about.html;

http://www.jefferson-center.org/;

http://frontpage.auburn.edu/tann//tann2/project2.html;

http://www.juryinstruction.com/50_toc_vol_4.htm;

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http://www.policity.com/CP/Public%20Library/glossary.htm;

http://www.perlulivo.it/cpu/appunti/e-demo0.html

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Figure 1. A membership function for a visitor to Brittany, France

before investing time in education. What he chooses to do depends

upon work time Tw, leisure time Tl, time consumed in transactions

costs with strong uncertainty Tα, and time consumed in education,

Tε. Assume for simplicity that the opportunity cost of time is the

wage rate.

49

Othergoods

A

Q0 Q1

Boating only ; Boating-fishing ; Boating-fishing-swimming ;

M0 (Tα, T ε = 0)

M0 (Tα, > 0)

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Figure 2. Education and its effect on the membership function.

Choosing to spend time Tε and to surrender some consumption of

goods and services Mε to become educated might reduce the strong

uncertainty around both consumption of goods and services and the

environmental amenity in question (compare the shaded to the

original rectangle).

50

A

Other goods

Q0 Q0’ Q1’ Q1 Environmental amenity, Q

M0 (Tα, T ε = 0)

M0 – Mα’ – wTα’

M0 – Mα’ – wTα’- Mε - wTε

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Figure 3. Implications of the preference construction hypothesis.

The membership function “A” leaves the person with very little to

distinguish between A’, B, C, D. Evaluations in this context may

lead to uncertainty. BigOil lawyers want a protocol that makes the

membership functions associated with the new environmental amenity

as close together as possible, as large as possible, with an

implied compensated demand as flat as possible (A’ to B to D).

Lawyers for the Department of Justice want a protocol that

encourages differences that are distinct and large, (A’ to B to C).

51

Other goods

Q0 Q1 Environmental amenity, Q

M0 (Tα, T ε = 0)

What Justicewants

What Big Oil wants

A

A’

C

B D D

WTP Justice

WTP Exxon ?

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Figure 4. Protest provocation, provoking lexicographic responses,

and WTA. If WTP formats are exclusively used and the status quo

is perceived to be to the right of the level of environmental

amenity offered, a protest is provoked. Formats prejudicial to the

cause of the environmental amenity decline might provoke

lexicographic responses. The job of the opposition would be to

cast reasonable doubt on the welfare change, leading to flat and

statistically insignificant responses, which might be interpreted

as Pareto Irrelevant responses.

52

Othergoods

Q1

M0 (Tα, T ε = 0)

What Greenspace wants

What BigOil wants

A

C

B

Proposed WTP

WTA ??

WTA ?