Revealed versus Stated Preferences: What Have We Learned About Valuation and Behavior?

In this article I review and discuss the use of stated and revealed preference methods in two contexts: the estimation of the value per statistical life (VSL) and the “energy efficiency gap,” namely the slow pace of adoption of energy efficient technologies, even when they make economic sense. I examine whether revealed preference and stated preference studies complement one another in answering basic valuation and policy questions. I conclude that stated preference methods can fill some of the gaps typical of revealed preference approaches. For example, in the VSL context, they can address risk latency, age, and health status questions, and reach populations that are typically not represented in labor markets. Even more important, in stated preference studies, risk attributes can be varied independently from one another across respondents, allowing the analyst to estimate the effect of each of them on the VSL. Stated preference methods also have the potential to explore aspects of energy efficiency decisions (including uncertainty in the energy savings or disruption in the home during renovations) that are not easily observed in revealed preference studies. Estimating discount rates (a key issue in energy efficiency decisions) poses challenges in both revealed and stated preference studies.