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Abstract

Using psychological terms such as cognitive dissonance and confirmation bias, this study reveals how individual consumers inadequately process (food safety) information, pay limited attention to signals, and make purchase decisions that are bias towards their initial choices. While it is expected that reading extra information about potential risk associated with the food decreases consumers' willingness to pay (WTP), the magnitude of the impact varies across individuals. In general, consumer's judgment and information processing depend a lot on their initial beliefs or consumption status. They tend to use higher bidding prices to justify previous behaviors and selectively pay attention to information in favor of their initial choices. Using an incentive compatible auction mechanism, this study elicited consumers' WTP under different informational settings. Results showed that consumers bid much higher when they chose to commit to food items (treatment) than when they were randomly assigned (control), suggesting cognitive dissonance. On average, the bidding premium was about 13 cents (roughly 30%) higher for low-risk food item and 30 cents (almost 60%) higher for high-risk item. The bidding premiums were further enlarged as food safety information was revealed to consumers. Confirmatory bias hypothesis was supported by the finding that those who made commitment earlier were more reluctant to change the bids despite of increased risk perceptions. In terms of market responses, due to psychological biases among consumers, demand curves were less possible to shift down under food safety risk. Results in this study implied that consumers were less responsive to public information due to their existing habits. Extra strategies would be needed to increase the efficiency of public communication to promote health.

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