Experimental Evidence of Risk Aversion in Consumer Markets: The case of Beef

Summary

Consistency of quality is important for brand loyalty and market shares in consumer markets. Among beef consumers, tenderness is the primary quality attribute. Tenderness cannot be determined by visual inspection and two cuts of beef with identical marbling classification can differ considerably in tenderness. We use an experimental auction to investigate how inconsistencies in tenderness affect consumers’ willingness to pay for beef. We found that the participants assigned a negative value to uncertainty and were risk averse in their beef choices. By categorizing the beef into tenderness classes, we significantly increased the total value of the beef.