EXPERIMENTAL EVIDENCE OF RISK AVERSION IN CONSUMER
MARKETS: THE CASE OF BEEF TENDERNESS
Frode Alfnes, Kyrre Rickertsen and 0ydis Ueland
Abstract
Consistency of quality is important for brand loyalty and market share in consumer markets. Among
consumers of beef, tenderness is the primary quality attribute. We use an experimental auction market
to investigate how inconsistency in tenderness affects consumers’ willingness to pay (WTP) for beef.
We find that both the level and the spread of tenderness affect consumers’ WTP for beef.
Categorization the beef into various classes of tenderness increased the total value of the beef by 8%,
which suggests that improved tenderness labeling may be a profitable strategy.
JEL: C91, D12, D8, Q13.
Key words: beef tenderness, consumer demand, experimental auction, marketing, risk aversion.
Introduction
Risk preferences are important for consumers’ choices in food markets, and several studies have
already investigated consumers’ willingness to pay (WTP) for food products associated with risk.
These studies focus on either high stake but low probability risk, such as potential microbiological
hazards resulting in illness or death (e.g., Hayes et al.,1995; Fox et al., 1998; Fox, Hayes, and
Shogren, 1998), or food products that some consumers fear represent an unknown risk, such as
genetically modified foods (e.g., Lusk, 2003; James and Burton, 2003) or hormone-treated beef (e.g.,
Alfnes, 2004; Alfnes and Rickertsen, 2003). The focus of this paper is risk aversion in consumer food
markets with low stake but high probability risk. Consumers are exposed to this type of risk in the
form of inconsistent quality attributes in food products. The probability of buying a tough steak is
relatively high, for instance, but the negative consequences are generally less severe; a tough steak
will not kill you, but it can ruin your dinner.
Holt and Laury (2002) investigated peoples’ attitudes toward risk using lottery choices and
found that risk aversion plays an important role in low, as well as high, stake choices. Their results
indicate that risk aversion can plays an important role in the low stake choices food buyers make.
However, a number of studies have found that risk preferences elicited in one context cannot be
directly transferred another (e.g., Hudson, Coble, and Lusk, forthcoming; Hershey, Kunreuther, and
Schoemaker, 1982). The importance of risk aversion in consumer markets then remains a largely
unanswered empirical question.
Low stake and high probability risk is typical for unprocessed or semi-processed food
products with inconsistent quality attributes. Producers of processed foods use a variety of quality
control methods to ensure that products within a particular category have no, or barely any, detectable
differences in important attributes. For unprocessed or semi-processed foods, quality control may
include non-invasive techniques or the use of test samples, but these methods are often insufficient to
accurately predict the quality of a batch because of the large biological diversity of natural produce.
For example, two apparently similar cuts of beef can differ significantly in tenderness because of
factors such as the animal's age, breed, gender, and stress level, and the tenderizing process employed.
Thus, consumers are subject to much higher variability in the sensory experience when buying
unprocessed or semi-processed foods, such as meat, fish, fruits, and vegetables, than when buying
processed foods.
Tenderness is the primary determinant of satisfaction among beef consumers (Dransfield,
Zamora, and Bayle, 1998; Sivertsen, Kubber0d, and Hildrum, 2002), and inconsistent or inadequate
tenderness are the top two beef-quality concerns for U.S. purveyors, restaurateurs, and retailers
(National Beef Quality Audi, 2000). There are several studies of consumer preferences for beef
tenderness. Acebron and Dopico (2000) investigated how consumers form in-store expectations about
beef quality; Lusk et al. (2001) used experimental methods to examine consumer WTP for steak
tenderness in a grocery store setting; and Lusk, Feldkamp, and Schroeder (2004) used several types of
experimental auctions to elicit WTP for quality differentiated beef steaks. The results of these studies