American Association of Wine
Economists (AAWE)
10th Annual Conference in
Bordeaux, France.
CONSUMER BEHAVIOR AND PERCEIVED RISK:
AN EXPERIMENTAL INVESTIGATION OF RISK
TAKING WHEN BUYING WINE
by
J. François Outreville and J. Desrochers
SETTING THE STAGE
1. Definitions: risk, uncertainty, ambiguity,
and conflict
2. The context of the experimental
investigation
3. The preliminary results
KNOWN RISK
UNCERTAINTY = IGNORANCE
)
.
IGNORANCE AND AMBIGUITY
IGNORANCE AND AMBIGUITY
.
NEXT STEP:
AMBIGUITY AND CONFLICT
 Uncertainty
ignorance, no information
(analogous to the urn problem) (Ellsberg, 1961)
 Ambiguity
[pmin, pmax], vagueness
(range problem) (Curley and Yates (1985)
 Conflict
(Smithson, 1999)
(Gajdos-Vergnaud, 2013)
Expert 1 Expert 2
Situation 1 (known risk)
1/4
1/4
Situation 2 (conflict)
1/4
3/4
Situation 3
(1/4 , 3/4) (1/3 , 2/3)
EXPERIMENTAL INVESTIGATION
1. Defining the context
•
Risk taking when buying wine
2. Design of a questionnaire
• Hershey and Schoemaker (1980)
• Loubergé and Outreville (2001)
3. Empirical investigation
•
•
Undergraduate students, Finance, 2012 to 2014,
University of Sherbrooke, Québec.
Multiple samples
AN EXPERIMENTAL INVESTIGATION:
THE CONTEXT
Buying wine in
a tax-free zone
of an airport
There is a possible functional risk
(a corked wine for example)
THE RISKY PROSPECT
 The risky prospect is suggested by a case of 12 bottles
 Uncertainty
 Ambiguity
 Known-risk
ignorance, no information
[pmin, pmax]
= 1/12 (8.3%)
 Determination of [pmin, pmax]
 Students were asked if they had prior experience with a corked
wine (yes = 39%)
 Asked to reveal their perceived probability for this risk
 Average 6.1% (5.0% - 7.8%)
THE EXPERIMENTS
 The experiments are conducted with undergraduate
students in Québec using a questionnaire similar in
structure to the one originally tested by Hershey and
Schoemaker (1985) and Loubergé and Outreville (2001).
 The context is the decision to purchase a bottle of wine
(the price of which varies from $5 to $220).
 The risky prospect is suggested by cases of 12 bottles
that may or may not contain one corked bottle
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EXAMPLE OF QUESTIONS
 1st experiment: the effect of price on demand
You want to buy a bottle of wine valued $10 but you don’t
know if there is a possibility that you may buy a corked
bottled. Do you buy this bottle?
 2nd experiment: a risky prospect
You want to buy a bottle of wine valued $10 and the
manager knows that for sure there is always one corked
bottle in the case of 12 (1/12). Do you buy this bottle?
Experiments are distributed to different groups of
students (random distribution)
THE EXPERIMENTS
 The total number of participants amount to 325.
 36 students did not want to buy wine at all.
 Only a few were inconsistent in their answer
(they violate the assumption of monotonicity).
These were excluded from the sample.
 Average age between 21 and 22
 51% males
PROFILE OF SUBJECTS:
+ QUESTIONS
Attached to each questionnaire are questions dealing with:
- price habits (how much do you pay for a bottle of wine?),
Average $19.8 (18.3 – 20.8)
- perceived risk for a corked bottle,
- sex and age.
In some of the groups participants were also asked to grade
on a 5-point Likert scale how they perceived themselves
compared to the group for three types of trait of
character/personality:
1) are you a risk-averse/risk-seeking person?,
2) are you careful with money/spending easily money?
3) are you an optimist/pessimist person?
HYPOTHESIS 1 AND 2
 People prefer known-risk to uncertainty analogous to
Ellsberg’s urn problem

Hogarth and Kunreuther, 1989; Casey and Scholz (1991),
Sarin and Weber, 1993; …and more recently
…Pulford and Colman, 2007,2008.

Some have challenged these results
(Fox and Tversky, 1995; Viscusi and Chesson, 1999…)
 People prefer known-risk to ambiguity in the sense of
Curley and Yates (1985, 1986)

Set of probabilities, interval [pmin, pmax]

Di Mauro and Maffioletti (2001, 2004)
PEOPLE PREFER KNOWN-RISK TO
UNCERTAINTY/IGNORANCE
Demand is a decreasing function of price
Questions 1 to 7 refers to prices ranging from $5 to $220
N = 75, 76
HYPOTHESIS 3: AMBIGUITY
 3rd experiment: ambiguity
You want to buy a bottle of wine valued $10 but the
manager knows that usually the probability that you may
get a corked bottled varies between 2% and 8%.
Do you buy this bottle?
Experiments are distributed to different groups of
students (random distribution)
PEOPLE PREFER A KNOWN-RISK
TO AMBIGUITY
N= 58
100.00
90.00
80.00
70.00
60.00
Known risk
50.00
Ambiguity
40.00
30.00
20.00
10.00
0.00
5
10
20
50
90
140
220
TESTING THE RANGE OF
PROBABILITIES
 4th experiment: ambiguity
You want to buy a bottle of wine valued $10 but the
manager knows that usually the probability that you may
get a corked bottled varies between 7% and 15%.
Do you buy this bottle?
Experiments are distributed to different groups of
students (random distribution)
AMBIGUITY IS DEPENDANT ON THE
LEVEL OF PROBABILITIES
N= 58
HYPOTHESIS 4: CONFLICT
 5th experiment: conflict
You want to buy a bottle of wine valued $10 but one sale
person knows that usually the probability that you may
get a corked bottled is less than 2%. Another sale person
asserts that it is usually more than 8%.
Do you buy this bottle?
Experiments are distributed to different groups of
students (random distribution)
COMPARISON OF AMBIGUITY AND
CONFLICT
N= 56
ROBUSTNESS:THE WILLINGNESS TO BUY
AND PAY FOR A BOTTLE OF WINE
 The values for willingness to buy (WTB) a bottle and on the willingness to
pay (WTP) for a bottle of wine are drawn from the survey. In the empirical
analysis it is expected that control variables such as gender and personal
characteristics of respondents affect the behaviour as well as the price
habits and the perceived risk
 The willingness to pay for a bottle is positively related to the price
habits and negatively related to the perceived risk. The higher the
perceived risk, the lower is the willingness to buy.
 The result is consistent with the graphical analysis of the answers to
the questionnaires. Specific differences exist in wine consumption
behaviour between males and females (Barber et al., 2010; Bruwer et al.,
2011) and it is verified in our analysis that gender (Male) and the risk
seeking behaviour influence positively the willingness to pay
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PRELIMINARY CONCLUSIONS
 Buying a bottle of wine is often marked by expectations and uncertainty
as to its quality and subjects were given some background information
on possible functional risks associated with the purchase of a bottle.
 The findings provide a better overall understanding of the role that
perceived risk has in driving wine purchase decisions.
 Wine consumers are exposed to a risk environment they do not control
and the process of understanding how risks are perceived by
consumers may be an advantage for marketers, managers and retail
assistants.
 Because consumers are likely to employ risk-reduction strategies, prior
information given to consumers would help reduce the psychological
and overall perceived risk and increase the willingness to buy.
LIMITATIONS AND POSSIBLE
EXTENSIONS
 The study should be extended to older consumers in order to compare
these results obtained for the young millennials with the other cohorts
of older millennials.
 Next to that, given the limited buying power of students involved in this
study, the other cohorts might purchase more wines and therefore,
prior experience with a corked bottle of wine could be higher.
 Whether or not it is rational for people’s decisions to be affected by
probability uncertainty is a separate question. It does not necessarily
imply that risk attitude is the same in all cultural environments.
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CONSUMER BEHAVIOR AND
PERCEIVED RISK
Thank you for your
attention and
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