Definition of The Embedding Effect: The embedding effect is the tendency of some contingent valuation survey responses to be similar across different survey questions in conflict with theories about what is valued in the utility function.

An example from Diamond and Hausman (1994): A survey might come up with a willingness-to-pay amount that was the same for either (a) one lake or (b) five lakes which include the one that was asked about individually. If lakes have some utility value to the respondent, one would have expected that five lakes would be worth more than one. Possibly the difference arises because the respondent was not expressing a specific preference for the first lake, and/or was not taking a budget constraint into account. Diamond and Hausman argue that for this reason among others contingent valuation surveys cannot arrive at good estimates for values of public goods. (Econterms)

Terms related to The Embedding Effect:

• Contingent valuation