1. 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

2. Setting the stage
Definitions: risk, uncertainty, ambiguity, and conflict
The context of the experimental investigation
The preliminary results

3. Known risk

4. Uncertainty = Ignorance)

5. Ignorance and ambiguity.

6. Ignorance and ambiguity.
Viscussi and Chesson (1999) find that subjects react differently to different degrees of ambiguity.

7. 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)

8. Experimental investigation
Defining the context
Risk taking when buying wine
Design of a questionnaire
Hershey and Schoemaker (1980)
Loubergé and Outreville (2001)
Empirical investigation
Undergraduate students, Finance, 2012 to 2014, University of Sherbrooke, Québec.
Multiple samples

9. 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)

10. The risky prospect
The risky prospect is suggested by a case of 12 bottles
Uncertainty ignorance, no information
Ambiguity [pmin, pmax]
Known-risk = 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%)

11. 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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12. 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)

13. 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

14. 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?

15. 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)
Fox and Tversky (1995) document ambiguity aversion in comparative and non-comparative contexts
Viscussi and Chesson (1999) find that subjects react differently to different degrees of ambiguity.

16. 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

17. 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)

18. People prefer a known-risk to ambiguity
Two possible reasons: 1) the maximum value in the ambiguity case (8.0%) is fixed just below the known-risk value (8.3%) in the second experiment. If subject anchor to the maximum value the difference between the known-risk situation and the ambiguity situation would be small; 2) the experiments are done within a non-comparative context and according to Fox and Tversky (1995) ambiguity aversion is only significant in comparative contexts.

19. 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)

20. Ambiguity is dependant on the level of probabilities

21. 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)

22. Comparison of ambiguity and conflict

23. 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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24. 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.

25. 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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26. Consumer behavior and perceived risk
Thank you for your attention and comments