FORMAL AND INFORMAL THREATS AND THE REVELATION OF TRUE PREFERENCES: Evidence from a Field Experiment

Karim KHAN* and Anwar SHAH**

Applied research in economics is mostly based on information which is provided by a heterogeneous set of economic agents. However, such information may not reflect the true preference of agents. In order to highlight this issue, a field experiment which comprises a fund-raising campaign for helping needy students was conducted. A pledge from students in different treatments was taken; and they were asked to deposit their pledge by a specific date. Results of this study shows two important findings: First, the deposited amount was significantly less than the pledged amount, in all treatments; second, the introduction of formal and informal threats reduced the amount of both the average and total pledge. Alternatively, threats incentivize individuals to make only the realistic pledges. Thus, people do not reveal true preference when they are asked about the same things in different ways/circumstances. In particular, in absence of the formal or informal threats, individuals have no incentive to reveal their true preference. Analysis of the study, have an important implication for applied research like willingness to pay for alternative commodities, construction of survey-based indices, perception surveys, etc. For instance, it suggests that careful analysis should be taken before taking any policy decision on studies related to these aspects.