Consumer Risk Aversion Research Articles

Pricing Decisions in Construction and Demolition Waste Recycling Supply Chains under Carbon Tax Scenarios

Pricing decisions for construction and demolition waste recycling are severely hampered by consumer uncertainty in assessing the value of recycled building materials. This paper uses a construction and demolition waste (CDW) recycling utilization model that consists of a building materials manufacturer and a building materials remanufacturer and compares both the prices and the profits under different carbon tax scenarios, i.e., consumer risk-averse and risk-neutral scenarios. The main conclusions are as follows. (1) The optimal price of traditional products is always negatively correlated with consumer risk aversion. Unlike traditional products, the optimal price of recycled building materials is negatively related to the degree of consumer risk aversion in the case of a low carbon tax; the opposite conclusion is obtained in the case of a high carbon tax. (2) When the abatement cost coefficient is below the threshold and the carbon tax is low, the profits of the building materials manufacturer and remanufacturer show a U-shaped trend with consumer risk aversion; in the case of a high carbon tax, the profits of the two enterprises are positively correlated with consumer risk aversion. In addition, when the abatement cost coefficient is above the threshold, there is an interval in which the profits of the building materials manufacturer are positively correlated with consumer risk aversion in the case in which the carbon tax satisfies this interval. In all the other cases, there is a U-shaped trend in profits and consumer risk aversion levels for both the building materials manufacturer and the remanufacturer.

Advance selling of fresh produce e‐tailer with uncertain demand and risk‐averse consumers

AbstractAiming to investigate whether a fresh produce e‐tailer should implement the strategy of advance selling considering the behavior of consumers' risk aversion, we build a two‐stage newsvendor decision‐making model and further explore how the advance selling value is affected by factors, such as the freshness‐keeping cost and the effect of demand information updating on reducing demand uncertainty. The results indicate that adopting advance selling strategy benefits the e‐tailer or not depends on consumer risk aversion and the effect of demand information updating on reducing demand uncertainty. The increasing effect of demand information updating on reducing demand uncertainty is conducive to improving the value of advance selling, and the freshness‐keeping cost may increase or decrease the value of advance selling. Besides, adopting the strategy of advance selling may benefit both the e‐tailer and the consumers under certain conditions.

Individual Risk Aversion, Inheritance Expectation and Household Annuity Ownership

Although risk preferences and inheritance expectations should affect annuitization decisions, few studies have empirically tested these relations. This study bridges the gap in the prior literature by investigating potential effects that consumer risk aversion and inheritance expectations have on annuitization. Using data from the 2012 wave of the Health and Retirement Study, this study finds that consumers who are more risk averse have a higher likelihood of owning household annuity income compared to consumers who are less risk averse. Consumers with a higher inheritance expectation are more likely to have household annuity income compared to those with a lower inheritance expectation. Finally, when risk aversion is interacted with inheritance expectation, it increases the likelihood of household annuity ownership.

Operational strategies for IoT-enabled Brick-and-Mortar retailers in a competitive market

Internet of Things (IoT) technology has been widely implemented in the retail industry to achieve sustainable operations; meanwhile, a number of operational concerns such as privacy and security have been exposed in practice. Therefore, more systematic theoretical analysis necessitates being performed in related fields. This paper explores how brick-and-mortar retailers can apply IoT technology to contend with online retailers and attract sustainable development. We first develop the pricing models for the online retailer and the brick-and-mortar retailer, respectively, by considering consumer hassle costs of purchasing in different retail channels and the impact of IoT technology. Further, we examine the benefits of IoT technology to the brick-and-mortar retailer and consumer surplus by comparing different cases. Afterward, to validate the robustness of analytical results from the basic models, we extend them to consider consumer risk aversion toward IoT technology and the price competition. Numerical analyses based on real data are also carried out. This study uncovers surprising findings and derives significant managerial insights. For example, we observe an opportunity that the IoT-enabled brick-and-mortar (IoT-B&M) retailer can regain lost market share from the competitive online retailers. Nevertheless, a higher level of personalized service supported by IoT is not necessarily beneficial to IoT-B&M retailers, which is contrary to our intuitions. Another counter-intuitive is that IoT-B&M retailers are unnecessary to improve service quality in the price competition, and they become challenging to profit when consumers are risk-averse.

Creating all-win by blockchain in a remanufacturing supply chain with consumer risk-aversion and quality untrust

Remanufactured product, by definition, is the product with the same-as-new quality but a low cost because the components are reused and/or repaired. Consumers have doubts about the wastage status of the components so risk-aversion and quality untrust are incurred when they buy remanufactured products. To cope with this, it is necessary for both the components supplier and the manufacturer to adopt blockchain which enables credible traceability of the components’ real-time wastage information that can be disclosed to the risk-averse consumers. In this paper, we formulate consumers’ valuation of remanufactured products with and without blockchain quality information, based on which we examine blockchain adoption incentives of both the supplier and the remanufacturer that might create all-win situations. When the manufacturer sells both regular and remanufactured products, we find that the manufacturer prefers blockchain adoption while the supplier prefers blockchain adoption if (1) the consumers are not very risk-averse; (2) the consumers’ risk-aversion degree is moderate but customers’ quality uncertainty of the remanufactured product is small. We further investigate whether blockchain adoption can coordinate the supply chain and improve the environmental performance.

Quality disclosure in sharing economy platform with network externality under consumer risk aversion

Purpose This work aims to examine the quality disclosure strategy of sharing economy platforms with network externality, considering consumer risk aversion.Design/methodology/approach The game theory, sensitive analysis and numerical study are used herein. The equilibria are derived from the game theory. The quality disclosure strategy is analyzed by profit comparison. To further understand the characteristics of the optimal disclosure strategy, sensitive analysis and numerical studies are conducted to detail the analytical results.Findings Regardless of market structure, the quality disclosure decision problem is a trade-off between information effect and cost effect. Consumer risk aversion is a factor that can incentivize low-quality platforms to disclose quality. Both consumer risk aversion and network externality influence the quality disclosure strategy through information effect. Interestingly, for different competition intensities, consumer risk aversion and network externality could lead to positive or negative information effects of removing uncertainty. The authors show that under certain conditions, consumer risk aversion and network externality could induce more quality concealment.Research limitations/implications The quality is set exogenous herein, and the integrated process of quality investment and information disclosure is an interesting direction for future research.Practical implications This work provides managerial insights for sharing economy platforms regarding how to wisely consider consumer risk aversion and network externality when sharing quality information.Originality/value This work identifies two effects that determine quality disclosure strategy and specifies the role of each factor on quality disclosure.

Adverse selection, efficiency and the structure of information

This paper explores how the structure of asymmetric information impacts on economic outcomes in Akerlof’s (Q J Econ 84(3):488–500, 1970) Lemons model applied to the labour market and extended to admit a matching component between worker and firm. We characterize the nature of equilibrium and define measures of adverse selection and efficiency. We then characterize the joint distribution of outcomes—adverse selection, probability of trade, efficiency, profits, and wage—for the class of Gaussian basic games and information, and perform comparative statics with respect to a parsimonious parameterization of the information structure. We use this framework to revisit the classic issue, first addressed by Roy (Oxford Econ Pap 3(2):135-146, 1951), of selection into different sectors. We identify conditions under which an effect reversal—adverse selection at any realisation of public information but, overall, positive selection into the outside sector—can and cannot arise, and note the implications for empirical work. We also explore the divisions of expected total surplus between worker and firm that can be achieved as information varies. We show that, if the distribution of worker types is non-singular, any point in the set of possible surplus divisions can be achieved as a limit of a PBE for some information structure with asymmetric information. Finally, re-interpreting the model in an insurance context, where the matching component becomes consumer risk aversion, we use our framework to highlight sources of advantageous selection.

Digital labelling in the retail environment: a domain-specific innovativeness perspective

Purpose This is an exploratory study leveraging a domain-specific innovativeness (DSI) perspective to understand adoption of QR code delivered mobile marketing. Specifically, the purpose of this paper is to explore the roles of “innovativeness” and “risk aversion” on QR code adoption and usage in the low-involvement context to address tensions between risk and innovation literatures. Design/methodology/approach Participants were assigned to “laggard” (n=19) and “innovator/early adopter” (n=19) segments using the DSI scale. A combination of qualitative reductionism (means-end chain analysis) and qualitative holism (semi-structured interviewing) was employed. Findings Confusion regarding the functionality and purpose of QR codes adversely affected willingness to use and utility perceptions. Source trust and information credibility emerged as key concerns for those considering QR codes, with consumer risk aversion and innovativeness orientations influencing the nature of trust concerns. A perceived lack of complementarity between QR codes and retail environments reduced perceived relevance. For low-involvement products, marketers should consider moving beyond brand-level communication to align offerings to the broader foodscape. Research limitations/implications Findings are limited to the low-involvement product context. Although DSI was considered, the impact of technological innovativeness was not explored. Future research may consider the impact of information provision at the broader foodscape rather than product-specific level when exploring QR code applications in the food domain. Originality/value This is the first study to explore the role of product category innovativeness, as distinct from technological innovativeness on the acceptance and usage of mobile marketing applications in the low-involvement context. This research builds on existing risk and innovation literatures and addresses tensions between these literatures presented by QR codes within the low-involvement context.

Advance Selling in the Presence of Market Power and Risk‐Averse Consumers

ABSTRACTWe consider a manufacturer who procures raw material through a long‐term contract as well as in a spot market to produce goods for selling to consumers, a fraction of whom are risk averse. We assume that the manufacturer has the market power to influence the spot market price of raw material. To increase consumer demand and obtain demand information, the manufacturer may implement an advance selling program that depends on his market power and consumer risk aversion. We investigate whether the manufacturer should offer the advance selling program and how his decision and performance are influenced by the program. We find that the advance selling program should be offered when consumer risk aversion is low, or when it is high, and the manufacturer has high and low market power. By contrast, the advance selling program should not be offered when consumer risk aversion is high and the market power is medium. Our results also reveal that even with no promotion cost of the advance selling program, the manufacturer may not always offer it. Finally, the manufacturer benefits more from advance selling when consumers are myopic and/or risk neutral.

Modelling social influence and cultural variation in global low-carbon vehicle transitions

We present a unique and transparent approach for incorporating social influence effects into global integrated assessment models used to analyse climate change mitigation. We draw conceptually on Rogers (2003) diffusion of innovations, introducing heterogeneous and interconnected consumers who vary in their aversion to new technologies. Focussing on vehicle choice, we conduct novel empirical research to parameterise consumer risk aversion and how this is shaped by social and cultural influences. We find robust evidence for social influence effects, and variation between countries as a function of cultural differences. We then formulate an approach to modelling social influence which is implementable in both simulation and optimisation-type models. We use two global integrated assessment models (IMAGE and MESSAGE) to analyse four scenarios that introduce social influence and cultural differences between regions. These scenarios allow us to explore the interactions between consumer preferences and social influence. We find that incorporating social influence effects into global models accelerates the early deployment of electric vehicles and stimulates more widespread deployment across adopter groups. Incorporating cultural variation leads to significant differences in deployment between culturally divergent regions such as the USA and China. Our analysis significantly extends the ability of global integrated assessment models to provide policy-relevant analysis grounded in real world processes.

Optimal operation of combined heat and power under uncertainty and risk aversion

Despite the proven benefits of combined heat and power (CHP) and recently introduced subsidies to support it, CHP adoption has not met its targets. One of the possible reasons for this is risk from uncertain electricity and gas prices. To gain insights into the risk management of a CHP unit, we develop a multi-stage stochastic mean-risk optimisation model for the medium-term management of a distributed generation system with a gas-fired microturbine with heat recovery and a boiler. The model adopts the perspective of a large consumer that procures gas (for on-site generation) and electricity (for consumption) on the spot and futures markets. The consumer's risk aversion is incorporated into the model through the conditional value-at-risk (CVaR) measure. We show that CHP not only decreases the consumer's expected cost and risk exposure by 10% each but also improves expected energy efficiency by 4 percentage points and decreases expected CO2 emissions by 16%. The risk exposure can be further mitigated through the use of financial contracts.

Consumer store choice in Asian markets

Consumers in Asian markets often need to make choices between highuncertainty stores and low-uncertainty stores. For example, an iPhone may be purchased from an Apple authorized retailer (a low-uncertainty store) or from an unauthorized seller (a high-uncertainty one). We build a game-theoretical model to capture the crucial roles of store uncertainty and consumer risk aversion in store choice. A model-based explanation is provided for the coexistence of charging a higher retail price and having a higher product demand. Interestingly, our finding shows that store uncertainty and risk aversion have the potential to enhance the overall market profitability under the full market coverage, whereas such profitability will be reduced under the partial coverage.Moreover, we find that consumer learning might not be beneficial to the market as a whole. While consumer learning increases the expected overall market profitability under the partial coverage, such learning actually decreases the expected overall profitability if the market is fully covered. Not only is the precision of signals during learning relevant, but also the number of signals per se plays an indispensable role in the market. In addition, we find that the second-mover advantage possibly enjoyed by a high-uncertainty store is an important force that changes market outcomes.

Risk preferences and purchase of energy-efficient technologies in the residential sector

Perceived risk in future energy cost savings of energy efficient technologies has been well identified as a major barrier to the adoption of such technologies. However, direct empirical evidence of the impact of consumer risk aversion on the adoption of energy efficient technologies has been limited. In this paper, we elicit consumer risk preferences using a multiple price list experiment tailored to household energy decisions. We then use the elicited risk preferences to explain consumers' self-reported historical purchase of energy efficient appliances and installation of energy efficiency retrofitting technologies. Using data from 432 homeowners from Arizona and California, USA, results show that more risk averse consumers are less likely to adopt energy efficient technologies (except for the case of energy efficient air-conditioners). In addition, the findings provide evidence that households' perceived mobility as measured by the probability of moving within five years, can amplify the negative impact of risk aversion on the adoption of energy efficiency retrofitting technologies. Overall, the results provide implications for policy makers and companies involved in promoting energy efficient technologies.

Radical Brand Extensions and Consumer Profile – A New Perspective on Innovation and Consumer Innovativeness

When creating a radical new brand extension, marketers must carefully consider their branding and marketing strategies in order to capitalize the competitive advantage gained by innovation. Because innovation can be achieved in a multitude of ways, it is important to understand how consumers think and react regarding a new product that possesses a high degree of innovation. Traditionally, when a new product is launched, companies will Asses consumer innovativeness by creating specific customer profiles. These profiles take into account intrinsic and extrinsic factors that influence consumer behaviour regarding radical brand extensions. The purpose of this article is to propose a new approach on the way this profiles should be built. The authors will debate if the traditional view on consumer innovativeness is obsolete and propose an alternative based on consumer risk profiles. Based on a detailed conceptual analysis this article develops the framework of a research methodology for measuring consumer innovativeness and consumer risk aversion when facing the dilemma of accepting a radical new product.

Modelling diffusion feedbacks between technology performance, cost and consumer behaviour for future energy-transport systems

Emerging technologies will have important impacts on sustainability objectives. Yet little is known about the explicit feedbacks between consumer behaviour and technological change, and the potential impact on mass market penetration. We use the UK as a case-study to explore the dynamic interactions between technology supply, performance, cost, and heterogeneous consumer behaviour and the resulting influence on long term market diffusion. Simulations of competing vehicle technologies indicate that petrol hybrids (HEVs) dominate the market over the long-term because they benefit from improved performance and are able to reach the steep part of the diffusion curve by 2025 while competing technologies remain in the early stages of growth and are easier to displace in the market. This is due to the cumulative build-up of stock and slow fleet turnover creating inertia in the technological system. Consequently, it will be difficult to displace incumbent technologies because of system inertia, cumulative growth in stock, long operational life, and consumer risk aversion to new unproven technologies. However, when accounting for both technological and behavioural change, simulations indicate that if investment can reach 30–40% per annum growth in supply, combined with steady technology improvements, and more sophisticated agent decision making such as accounting for full technology lifecycle cost and performance, full battery electric vehicles could displace the incumbent system by 2050.

GMO Standards, Endogenous Policy and the Market for Information

The paper develops a composite index of GMO standards restrictiveness for 60 countries, assigning objective scores to six different regulatory dimensions. Using this index and its components, we empirically investigate the political and economic determinants of GMO regulations. Results show that many of the determinants highlighted in the theoretical literature, such as the country trade position, the potential gains from GMO adoption, and the consumer risk aversion, are important determinants of the restrictiveness in GMO regulations. As a key result there emerges a prominent role for the market of information, showing that the structure of domestic mass media (public vs. private) is an important driver of GMO standards.

Consumer Value-Maximizing Sweepstakes and Contests

Sweepstakes and contests are some of the most frequently used promotional tools. Consumers participating in sweepstakes or contests have an opportunity to win prizes through a random draw. The authors examine how commonly used sweepstakes formats that vary in the number of winners and the allocation of the total reward money among the winners affect consumer valuations of the promotion. Given a fixed amount of reward money, the authors examine alternative reward formats based on the promotional objectives, consumer risk aversion, and degree of subadditivity. They test the analytical results using an experimental approach.

A Utility-Based Comparison of Pension Funds and Life Insurance Companies under Regulatory Constraints

This paper compares two different types of annuity providers, i.e. defined benefit pension funds and life insurance companies. One of the key differences is that the residual risk in pension funds is collectively borne by the beneficiaries and the sponsor's shareholders while in the case of life insurers, it is borne by the external shareholders. This paper employs a contingent claim approach to evaluate the risk return trade-off for annuitants. For that, we take into account the differences in contract specifications and in regulatory regimes. Mean-variance-skewness analysis is conducted to determine annuity choices of consumers. We calibrate the regulatory default probabilities such that the consumer is indifferent between a pension fund and a life insurer. The consumer's risk aversion level appears to play a crucial rule in this.

Understanding the consumer propensity to observe

Purpose – The purpose of this paper is to explore the tendency of some consumers to use the purchase behavior of unknown other consumers as a purchase decision heuristic, by first developing a measure of the consumer propensity to observe. The effects of likely individual consumer factors are then tested.Design/methodology/approach – A total of 356 consumers participated in the study by completing a questionnaire containing items measuring the constructs of interest. The modeled relationships of variables were tested using structural equation modeling with interaction terms.Findings – The specified model was found to explain 43 per cent and 44 per cent of consumers' propensity to directly and indirectly observe, respectively. Key antecedents identified as significant influencers of propensity to observe are consumer risk aversion, brand choice overload, self‐confidence, and propensity to conform to group norms. Additionally, moderating effects are identified, indicating that propensity to observe is highe...

Representative consumer's risk aversion and efficient risk-sharing rules

We study the representative consumer's risk attitude and efficient risk-sharing rules in a single-period, single-good economy in which consumers have homogeneous probabilistic beliefs but heterogeneous risk attitudes. We prove that if all consumers have convex absolute risk tolerance, so must the representative consumer. We also identify a relationship between the curvature of an individual consumer's individual risk sharing rule and his absolute cautiousness, the first derivative of absolute risk-tolerance. Furthermore, we discuss some consequences of these results and refinements of these results for the class of HARA utility functions.