Noisy Information Signals and Endogenous Preferences for Labeled Attributes
By: Liaukonyte, Jura; Streletskaya, Nadia A.; Kaiser, Harry M.
Liaukonyte, Jura; Streletskaya, Nadia A.; Kaiser, Harry M., Noisy Information Signals and Endogenous Preferences for Labeled Attributes, Journal of Agricultural and Resource Economics, Volume 40, Issue 2, May 2015, Pages 179-202
Consumer preferences for labeled products are often assumed to be exogenous to the presence of labels. However, the label itself (and not the information on the label) can be interpreted as a noisy warning signal. We measure the impact of “contains” labels and additional information about the labeled ingredients, treating preferences for labeled characteristics as endogenous. We find that for organic-food shoppers, the “contains” label absent additional information serves as a noisy warning signal leading them to overestimate the riskiness of consuming the product. Providing additional information mitigates the large negative signaling effect of the label.