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The Effect of Risk Presentation on Product Valuation: An Experimental Analysis

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Author Info
Nayga, Rodolfo
Shaw, W. Douglass
Silva, Andres

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Abstract

We examine how people might evaluate a product with novel attribute, given various kinds of risk information. Using a product with healthful benefits, we assess subjects'’ willingness to pay given various kinds of health risk information conveying reduced health risks, life tradeoffs, and ambiguity. Four treatments in separate non-hypothetical experimental auctions are used to elicit willingness to pay values. Results suggest that willingness to pay vary across the groups that receive differing risk information. Specifically, willingness to pay was higher for the group that was given clear risk information and questions related to life tradeoffs than for the group given ambiguous risk information. Willingness to pay was lowest for the group that was given no risk information at all.

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Publisher Info
Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21429.

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Date of creation: 2006
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Handle: RePEc:ags:aaea06:21429

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Related research
Keywords: Risk and Uncertainty;

References listed on IDEAS
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  1. John A. List & J. Shogren, 1998. "Calibration of the difference between actual and hypothetical valuations in a field experiment," Framed Field Experiments 0038, The Field Experiments Website. [Downloadable!]
    Other versions:
  2. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
  3. Rong Chen & Jianmin Jia, 2005. "Consumer Choices Under Small Probabilities: Overweighting or Underweighting?," Marketing Letters, Springer, vol. 16(1), pages 5-18, January. [Downloadable!] (restricted)
  4. Fox, John & Hayes, Dermot & Shogren, Jay, 2002. "Consumer Preferences for Food Irradiation: How Favorable and Unfavorable Descriptions Affect Preferences for Irradiated Pork in Experimental Auctions," Staff General Research Papers 5207, Iowa State University, Department of Economics.
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  5. Mukherjee, Ashesh & Hoyer, Wayne D, 2001. " The Effect of Novel Attributes on Product Evaluation," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 28(3), pages 462-72, December.
  6. Fox, John A. & Shogren, Jason F. & Hayes, Dermot J. & Kliebenstein, James B., 1999. "CVM-X: Calibrating Contingent Values with Experimental Auction Markets," Staff General Research Papers 1311, Iowa State University, Department of Economics.
    Other versions:
  7. W. Douglass Shaw & Rodolfo M. Nayga, Jr. & Andres Silva, 2006. "Health benefits and uncertainty: an experimental analysis of the effects of risk presentation on auction bids for a healthful product," Economics Bulletin, Economics Bulletin, vol. 4(20), pages 1-8. [Downloadable!]
    Other versions:
  8. Starmer, Chris & Sugden, Robert, 1991. "Does the Random-Lottery Incentive System Elicit True Preferences? An Experimental Investigation," American Economic Review, American Economic Association, vol. 81(4), pages 971-78, September. [Downloadable!] (restricted)
  9. Eisenberger, Roselies & Weber, Martin, 1995. "Willingness-to-Pay and Willingness-to-Accept for Risky and Ambiguous Lotteries," Journal of Risk and Uncertainty, Springer, vol. 10(3), pages 223-33, May.
  10. Jayson L. Lusk & Ty Feldkamp & Ted C. Schroeder, 2004. "Experimental Auction Procedure: Impact on Valuation of Quality Differentiated Goods," American Journal of Agricultural Economics, American Agricultural Economics Association, vol. 86(2), pages 389-405, 05. [Downloadable!] (restricted)
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  11. Cummings, Ronald G & Harrison, Glenn W & Rutstrom, E Elisabet, 1995. "Homegrown Values and Hypothetical Surveys: Is the Dichotomous Choice Approach Incentive-Compatible?," American Economic Review, American Economic Association, vol. 85(1), pages 260-66, March.
  12. Heath, Chip & Tversky, Amos, 1991. " Preference and Belief: Ambiguity and Competence in Choice under Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 4(1), pages 5-28, January.
  13. Chris Starmer, 2000. "Developments in Non-expected Utility Theory: The Hunt for a Descriptive Theory of Choice under Risk," Journal of Economic Literature, American Economic Association, vol. 38(2), pages 332-382, June. [Downloadable!] (restricted)
  14. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December. [Downloadable!] (restricted)
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