Environmental outcomes are often affected by the stochastic nature of the environment and ecosystem, as well as the effectiveness of governmental policy in combination with human activities. Incorporating information about risk in discrete choice experiments has been suggested to enhance survey credibility. Although some studies have incorporated risk in the design and treated it as either the weights of the corresponding environmental outcomes or as a stand-alone factor, little research has discussed the implications of those behavioural assumptions under risk and explored individuals’ outcome-related risk perceptions in a context where environmental outcomes can be either described as improvement or deterioration. This paper investigates outcome-related risk perceptions for environmental outcomes in the gain and loss domains together and examines differences in choices about air quality changes in China using a discrete choice experiment. Results suggest that respondents consider the information of risk in both domains, and their elicited behavioural patterns are best described by direct risk aversion, which states that individuals obtain disutility directly from the increasing risk regardless of the associated environmental outcomes. We discuss the implication of our results and provide recommendations on the choice of model specification when incorporating risk.
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Acknowledgements The authors would like to thank Jianbo Hu from Guizhou University of Finance and Economics who helped facilitate the data collection for this paper. The authors would also like to thank Nathalie Picard, Andre’ de Palma, Thomas Gall, Michael Vlassopoulos and participants of the 2019 international conference of choice modeling and annual Economics workshop at the University of Southampton for their valuable feedback and suggestions on earlier drafts of the paper. All errors are our own.
- air quality
- Direct risk aversion
- Discrete choice experiment
- Outcome-related risk perceptions
- prospect theory