Risk Aversion and Preference for Store Price Format

By: Yonezawa, Koichi; Richards, Timothy J.


Yonezawa, Koichi; Richards, Timothy J., Risk Aversion and Preference for Store Price Format, Journal of Agricultural and Resource Economics, Volume 41, Issue 3, September 2016, Pages 425-443

When choosing among retail store formats, consumers face two alternatives: everyday-low-price (EDLP) stores that offer lower mean prices, with less variation over time, or promotion-based (HILO) stores that offer higher mean prices but more variation over time. In this study, we investigate a relationship between consumers’ risk preferences and their store-choice decisions. We use data from a two-stage, incentive-compatible experiment to measure subjects’ risk preferences and to examine how their attitudes toward risk influence their preferences for store price format.We find that retailers’ pricing strategies allow consumers with different risk attitudes to choose a particular store price format.