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Choice experiments are not conducted in a vacuum: The effects of external price information on choice behavior

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  • Caputo, Vincenzina
  • Lusk, Jayson L.
  • Nayga, Rodolfo M.

Abstract

Consumers carry a wealth of external knowledge and experience into a study that may affect choices in even the most well-crafted experiment. We derive a conceptual model showing how the level and variability of price perceptions “outside” the task at hand might affect choice behavior, and we conduct an experiment to test the model by manipulating information provided to respondents in a way to alter the “outside the experiment” perceptions. Mixed logit, error component models show that reference-dependent models best describe the choice data, and we find that consumer choice is significantly affected by the experiment manipulations. The predictions of the model are borne out in the data. As expected, price sensitivity is generally higher for price changes above a price reference point than below. Also as predicted, exogenously increasing external reference prices and exogenously reducing the variability in references prices both serve to increase the probability of making a purchase and reduce the probability of choosing “none.” These results have important implications for the design and practice of choice experiments, as they show that consumer choice is affected by perceptions of the level and variability of prices outside the experiment. More generally, the results highlight the need to understand the formation and distribution of reference prices when predicting consumer choice.

Suggested Citation

  • Caputo, Vincenzina & Lusk, Jayson L. & Nayga, Rodolfo M., 2018. "Choice experiments are not conducted in a vacuum: The effects of external price information on choice behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 335-351.
  • Handle: RePEc:eee:jeborg:v:145:y:2018:i:c:p:335-351
    DOI: 10.1016/j.jebo.2017.11.018
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    Cited by:

    1. Tian, Qi & Zhao, Jinhua, 2018. "Regret Minimization in Decision Making: Implications for Choice Modeling and Policy Design," 2018 Annual Meeting, August 5-7, Washington, D.C. 274016, Agricultural and Applied Economics Association.
    2. Asioli, Daniele & Bazzani, Claudia & Nayga, Rodolfo M., 2018. "Consumers’ Valuation for Lab Produced Meat: An Investigation of Naming Effects," 2018 Annual Meeting, August 5-7, Washington, D.C. 274066, Agricultural and Applied Economics Association.

    More about this item

    Keywords

    Discrete choice experiments; Reference price; Reference price uncertainty; External price information; Food choice behavior;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • Q11 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Aggregate Supply and Demand Analysis; Prices

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