Preference Reversals & WTP/WTA Disparity: the case of food products

Serge BLONDEL and Mahsa JAVAHERI (INH, Angers)

FUR XII, 2006,

Potentiel subjects where very intersted…

… but we have used more standard subjects!

• Definition of preference reversals

• Preference reversals with a single lottery

• Cognitive consistency theory

• Experimental design

• Results

Preference reversals (PR)

• P-bet= (x, p)• $-bet= (y, q)

with y > x and p > q

Standard case

$ selling price > P selling

price

P-bet $-bet

PR with a single lottery

• P-bet = a sure gain P• $-bet (y, q)

Standard case$ selling price >

P P $

p

1-p

High quality [u: 1]

Low quality [u: 0]

πEU

[u: p]

Expected utility

L

0 1

ΠEU

p

π<L π>L

~

p

1-p

High quality [u: 1]

Low quality [u: 0]

~ πCC

[u: µ p + (1-µ) 1]

Cognitive consistency

L

0 1

ΠEU

p

πCC

µ p + (1-µ) 1= µ p + (1-µ)

π’CC

µ p + (1-µ) 0= µ p

π<L π<Lπ>L π>L

Predictions of cognitive consistency

Buying price (ascending auction)

► π = π’CC - ε : no PR

► π = π’CC + ε : PR possible

Selling price (descending auction)

► π = πCC - ε : PR possible

► π = πCC + ε : no PR

Buying price < Selling price

0 1

ΠEU

p

πCC

µ p + (1-µ) 1= µ p + (1-µ)

π’CC

µ p + (1-µ) 0= µ p

π<L π<Lπ>L π>L

Experimental Design

• December 2005• Orange carrots and 4 types of colored

carrots (white, yellow, pink and purple)• 2 groups, buying (34) and selling prices (30).• Stage 1: no information available

• pricing•choices

• Stage 2: information + tasting•same tasks

The lab and the products

PRICE:1 KILO OF PINK CARROTS

• you should indicate the maximum price that you are willing to pay for 1 kilo of Pink Carrots

Your Price = euros.

One number will be drawn from 1 to 30 : selling price = number 10 cent of € Your price selling price : buying at selling price Your price < selling price : no buying

Example of a buying price question

CHOICE :PINK CARROTS

You hould decide to buy or not, 1 kilo of Pink Carrots :

Price of 1 kilo of Pink Carrots = 1.10 euros

• Click on the corresponding bottom

I Buy I don’t Buy

Example of a choice question

Buying

Stage 2

(info)

Stage 1

(no-info)

Not buying at πCC - 0.1

Orange 15%

Colored 35%

Orange 21%

Colored 27%

Orange 18%

Colored 37%

Orange 21%

Colored 25%

buying at πCC + 0.1

Selling

Orange 27%

Colored 44%

Orange 10 %

Colored 11%

Orange 33%

Colored 43%

Orange 10%

Colored 9%

Not selling at πCC + 0.1

(reversed)

Selling at πCC - 0.1

(standard)

Stage 2

(info)

Stage 1

(no-info)

First stage: No information

0

0,5

1

1,5

orange white yellow pink purple

Selling

Buying

Second stage : information + tasting

0

0,5

1

1,5

orange white yellow pink purple

Selling

Buying