The effects of information about price anchoring: Evidence from a choice experiment

Abstract

AbstractThis study details the results of an experimental intervention designed to address the issue of price anchoring in the choice experiment framework. The intervention, which informs respondents of the tendency to anchor choices on potentially arbitrary pieces of information, is applied to a choice experiment used to examine consumers’ willingness to pay for local and/or organic tomatoes in Northern New England and develops three primary contributions. First, evidence from this study shows that anchoring effects are present. Second, providing information to consumers plays a mitigating role on these effects; price anchoring changes willing to pay estimates between 44% and 51% and exposure to anchoring-specific cheap talk is associated with a reduction in these anchoring effects between 60% and 80%. These results are explained through decreases in price sensitivity induced by increasing the mean price vector and subsequent increases in price sensitivity due to the information intervention. Finally, this study reveals that consumers are willing to pay a substantial price premium for locally grown tomatoes, from $0.96 to $1.12 per pound, offering some guidance for policy regarding growing practice and farm land use as regional coalitions support local agriculture expansion in the Northeast.