Risk Aversion and Preference for Store Price Format

• Main Authors: Koichi Yonezawa, Timothy J. Richards
• Format: Article
• Language: English
• Published: Western Agricultural Economics Association 2016-09-01
• Series: Journal of Agricultural and Resource Economics
• Subjects: choice-based conjoint experiments; experimental economics; store choice; uncertainty
• Online Access: https://ageconsearch.umn.edu/record/246173

When choosing among retail store formats, consumers face two alternatives: everyday-low-price (EDLP) stores that offer lower mean prices, with less variation over time, or promotion-based (HILO) stores that offer higher mean prices but more variation over time. In this study, we investigate a relationship between consumers' risk preferences and their store-choice decisions. We use data from a two-stage, incentive-compatible experiment to measure subjects' risk preferences and to examine how their attitudes toward risk influence their preferences for store price format. We find that retailers' pricing strategies allow consumers with different risk attitudes to choose a particular store price format.