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Income and (Ir)rational food choice

That’s the title of a new paper I have forthcoming in the Journal of Economic Behavior and Organization.

In short, I find the more one spends on food, the less consistent are their choices. In the economic way of thinking, inconsistency is typically associated with irrationality. First saying I prefer A to B, but then later saying B is preferred to A is an inconsistency, which is often referred to as a preference reversal. It’s hard to square such preference reversals with any model of rational choice.

Why might preference reversals increase with a consumer’s income? Here’s a bit from the paper (omitting references):

This paper sought to determine the relationship between consumers’ incomes and food expenditures on the one hand and preference consistency on the other. Previous literature has suggested at least two channels through which increasing income or expenditure might have deleterious effects on preference stability. The first operates through increasing demand for novelty and variety as incomes rise and the second operates via the relative incentive to behave rationally as the stakes fall.

In an empirical application involving almost 540,000 food choices made by almost 60,000 people, I find that 47% of respondents committed at least one preference reversal. How do preference inconsistencies relate to income and food spending?

Results show that the likelihood of a reversal [or preference inconsistency] and the number of reversals are significantly increasing in expenditures on food at home and away from home, and to a somewhat lesser extent, total household income. The magnitudes of these effects are large; larger than that associated with any other demographic or study design variables explored. For example, that the odds of committing a preference reversal [or preference inconsistency] are about 1.8 times (2.5 times) higher for individuals who spend $160/week or more on food at home (away from home) compared to individuals who spend less than $20/week. Exploring responses to three different “trap questions” that measure respondent attentiveness indicates that results cannot be explained by higher income households generally being more careless in their responses to questionnaires.

To explore the extent to which income and preference stability is related to variety or novelty seeking, the relationship between preference reversals and food values is also explored. As hypothesized, of the 12 food values studied, the relationships with preference reversals are strongest for the food values of price and novelty. Consumers for whom food price is a more important food value tend to commit fewer preference reversals. By contrast, consumers who rate novelty as a more important food value are more likely to exhibit unstable preferences.

Why does it matter whether rationality falls as incomes and food spending rises? As I’ve argued previously, increasing affluence likely allows us to indulge “higher” needs related to self actualization and self expression. Here’s a last bit from the paper, which is more speculative, and hopefully will spur some additional research (again, omitting references for readability).

There is a view among many food and agricultural scientists that many new food products marketed to higher income consumers are “unscientific” insofar as they make absence claims about ingredients and processes scientists have deemed safe. The preference instability observed among consumers with greater food expenditures in this study need not necessarily relate to beliefs about food that diverge from scientific consensus. Nonetheless, rising incomes might better enable people to seek out and identify sources of information that conform to their beliefs and cultural identities. It has also been argued that consumers might directly obtain utility from holding certain beliefs, which might lead to information avoidance. Whether certain food and agricultural beliefs are normal or inferior goods, in this framework, is an open question.

Arbitraging the Market for Food Fears

A couple weeks ago, the best selling author Michael Lewis was on campus, and I went to listen to him talk. I’ve read several of Lewis’ books, and it was interesting to hear him talk about some of the underlying themes that united them.

In his 2017 book, the Undoing Project, Lewis writes the history of Kahneman and Tversky and the development of behavioral economics, a field that posits people do not always make rational decisions. In an earlier book, Moneyball (published in 2004), a few stat/econ types realized baseball teams were leaving money on the table by ignoring data on what really drives team wins. One team manager, Billy Beane, attempted to arbitrage the market for players by buying “undervalued” players and putting them to higher-valued use. In another earlier book, the Big Short (published in 2010), Lewis talks about the people who made big bucks on the financial crisis by recognizing that markets were “mispricing” the risks of systemic mortgage failures. In some ways the books are out of order because Lewis’s earlier books described how various people made serious money from the sorts of behavioral biases that Kahneman, Tversky, and others uncovered.

What’s this got to do with food?

Many of the systematic biases that lead people to mis-price baseball players and mortgage-backed securities are likely leading people to mis-price foods made with new technologies. Take GMOs. A Pew study found 88% of scientists but only 37% of the public thought GMOs are safe to eat. Is it possible scientists are wrong and the public is right? Sure, but if you had to place a bet, where would you put your money?

Or, let’s take at a widely studied behavioral bias - the tendency for people to exaggerate the importance of low-probability risks. The propensity to overweight low probability events was one of the cornerstones of prospect theory, which was introduced by Kahneman and Tversky. This theory is sometimes credited as herding the birth of modern-day behavioral economics, and the paper was a key contributor to Kahneman later winning a Nobel Prize. If there is a 1% chance of an outcome occurring, when making decisions, people will often “irrationally” treat it as a 5% or 10% chance. There are many, many studies demonstrating this phenomenon.

Oddly, I have never seen a behavioral economists use this insights to argue that fears over growth hormones, GMOs, pesticides, preservatives, etc. are overblown. However, there are many food and agricultural scientists who argue that many of our food fears are, in fact, irrational in the sense that public perceptions of risk exceed the scientific consensus.

Now, getting back to Michael Lewis’s books on the people who figured out how to profit from behavioral biases in fields as divergent as baseball players and mortgage-backed securities, if we really think people are irrationally afraid of new food technologies, is it possible to put our money where our mouth is? Or, buy fears low and sell them high?

Here are a few half-baked thoughts:

  • If people are worried about the safety of food ingredients and technologies, shouldn’t they be willing to buy insurance to protect against the perceived harms? And if consumers are overly worried, they should be willing to pay more for insurance than it actually costs to protect against such harms. If we believe this is the case, then creating insurance markets for highly unlikely outcomes should be a money-making opportunity. On the plus side, such markets might also take some of the fear out of buying foods with such technologies since people can hedge their perceived risks.

  • Let’s say your Monsanto (now Bayer), Syngenta, BASF, or another seed/chemical company. What can you do to assuage consumers’ fears of your technologies, particularly if you believe the perceive risks are exaggerated? Why not offer up a widely publicized bond that will be held in trust in case some adverse event happens within a certain period of time? (This is like when contractors or other service suppliers attempt to gain trust by being bonded). If it is really true that consumers’ fears are exaggerated, the bond won’t be paid out (at least not in full), and will revert back to the company.

  • Did you know that it is possible to invest in lawsuits? Investors, whose money is used to front the legal bills, earn a portion of the payout if a plaintiff wins a settlement against a corporation or other entity responsible for some harm. The “price” of such investments is likely to rise the greater the public’s perceived odds of winning the case, which presumably related to perceptions of underlying risks. I can imagine institutions or markets arising that would enable investors to short such investments - to make money if the plaintiff losses the case. The current Monsanto-glyphosate verdict not withstanding, shouldn’t it be the case that one could profitability short lawsuits surrounding the safety of food and farm technologies if the fears around them are indeed overblown?

Other ideas?

Look at Me, I'm Buying Organic

That’s the title of a new paper I co-authored with Seon-Woong Kim and Wade Brorsen, which was just published in the Journal of Agricultural and Resource Economics.

We know consumers have a number of motivations for buying organic food - from perceptions about health, taste, safety, and environment to perceptions about impacts on smaller farmers. Whether these perceptions are accurate is debatable. In this paper, we were interested in an all together different motivation: the extent to which consumers feel social pressure to buy organic.

In our study, people made simulated choices between apples or milk cartons, where one of the characteristics was the presence or absence of the organic label. People were divided into one of four groups:

1) The control (CTRL): no manipulation.

2) The eye (EYE) treatment. This is going to sound crazy, but following some previous research, we showed an image of a person’s eyes on the screen as people were making their apple and milk choices. Prior research suggest that exposure to an image of eyes creates the aura of being watched, which increases reputational concerns and cooperative behavior.

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3) The name (NAME) treatment. Just prior to the apple/milk choices, people in this group were asked to type in their first name, and we ask them to confirm if they lived in the location associated with their IP address. The idea was to remove the perception of anonymity and increase social pressure.

4) The friend (FRND) treatment. Here we used a vignette approach. Jut prior to the apple/milk choices, people were told, “Now, imagine you are in the specific situation described below. Your good friends have family visiting. They’ve asked you to help out by taking their sibling, whom you’ve never met, to the grocery store. While you’re there with your friend’s sibling, you also need to do some shopping for yourself.”

If social pressure is a driver of organic food purchases, willingness-to-pay for the organic label would be expected to be higher in the EYE, NAME, and FRND treatments relative to the control.

Here are some summary statistics showing the percent of choices made by consumers in each treatment group in which a product with the organic label was chosen.

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We see some support for the idea that organic is more likely to be chosen in the social pressure treatments (EYE, NAME, FRND) than the control. The effects are statistically different, but that aren’t huge for every treatment considered. However, the above table doesn’t consider price differences. When we convert the choices into a measure of willingness-to-pay, we find the biggest effect is for the vignette (FRND). For this treatment, we find willingness-to-pay for organic is about 88% higher for apples and 82% higher for milk than the control.

For all groups, we found that education levels moderate the relationship between the social pressure treatment variables and willingness-to-pay for organic. In particular, social pressure is higher for more highly educated consumers. The effect was particularly large in the EYE treatment, where more highly educated consumers valued the organic label between 150% and 200% than less educated consumers when exposed to eyes.

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These results provide evidence that at least a portion of organic consumption is likely driven by a form of conspicuous consumption. Some might call it a form of conspicuous conservation, but that’s a whole other can of worms.

Hierarchy, Disagreement, and Food Politics

Discussions about food are frequently divisive.  Low-carb or low-fat?  Organic or conventional?  Local or exotic?  Is our food system fantastic or broken?

Now, look out into the future to the year 2050.  Do you think our future food conversations will be more or less divisive than they are today?  As much as I hope the opposite, I suspect that we're likely to have more disagreement, not less, as we we go forward.  

Here's my theory.  You've no doubt heard of Maslow's Hierarchy of Needs, which characterizes stages of human growth.  The basic idea is that one has to satisfy more basic needs (e.g., food and shelter for survival) before moving on to worry about other "higher" needs, like social belonging.  Other's have posited a similar phenomenon in the domain of food.  For example, see Ellyn Satter in this 2007 academic article where she lays out a hierarchy of food needs.

Below, I've constructed my own version of Satter's food need hierarchy.  At the bottom, when people are highly income and resource constrained, people are asking questions like, "how do I get enough calories to eat?"  Once that question is answered, they can then worry about other things like: "Is this food safe?"  As a person (or country) develops and gains more income, they move from food being primarily consumed to survive to food consumption eventually serving as a form of self expression and actualization.

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So, here's my twist on this.  When a community or country is largely at the bottom of the pyramid, there is likely to be broad agreement about "society's" objective in the food and farm realm: produce enough food to eat.  However, at the top of this pyramid, there is no reason to expect "society" to agree on the primary objective.  Satter called the top of this pyramid "instrumental food" and she said such foods were consumed to "achieve a desired physical, cognitive, or spiritual outcome."  If we're talking about food satisfying a particular view of what I think of myself (I eat what I am) or food satisfying a "spiritual outcome", why would we expect you and I to agree on what is "best"?  In this sense, we might expect food consumption to be more politicized.  

Satter also says of such food consumption, "These instrumental reasons may or may not be rational or supported by scientific inquiry."  No kidding!  That's precisely the world in which we now live.  A couple of years ago, for example, the Pew Foundation found that the widest gap between the general public and scientists was on the topic of the safety of GMOs.  Clearly, something other than peer-reviewed science is driving many people's food beliefs and consumption patterns.  

Another challenge is that psychology research shows that we have a tendency to think others are more like us than they actually are.  For those of us who have had the opportunity to "move up" the pyramid, we might forget the more foundational challenges many food consumers' face.  This might be one of the causes of food paternalism I've written about on a number occasions - the view that others should be eating more like me.  This quote from a psychology paper on "egocentric empathy gaps" is particularly apt:

A traditional Irish proverb, for example, states that ‘the full person does not understand the needs of the hungry.’ Most people in affluent societies may have little appreciation of the desperation of true starvation, and may consequently work less to alleviate it than if they understood how hunger really felt.”

It's not just that we might "work less" but that we might work to solve the problem in ways that suit our own particular desires rather than those we aim to help.  

So, is my little theory correct?  That greater affluence will lead to greater disagreement about which food and food systems are ideal?  As we often say in academic papers when we don't know the answer: "that question is left to future research."  

When Consumers Don't Want to Know

Since I first started working on the topic of animal welfare, I've had the sense that some (perhaps many?) consumers don't want to know how farm animals are raised.  While that observation probably rings intuitively true for many readers, for an economist it sounds strange.  Whether we're talking about GMO labeling, nutritional labels, country of origin labels on meat, or labels on cage free eggs, economists typically assume more information can't make a person worse off.  Either the consumer uses the information to make a better choice or they ignore it all together.    

There is a stream of literature in economics and psychology that is beginning challenge the idea that "more information is better."  One simple explanation for the phenomenon could be that consumers, if they know for sure they will continue to consume the same amount of a good, could be better off ignoring information because the information could only lower their satisfaction (perhaps because they'll feel guilty) for doing something they've already committed to doing.  In this paper by Linda Thunstrom and co-authors, 58% of consumers making a meal choice chose to ignore free information on caloric content, a finding that Thunstrom calls "strategic self ignorance" arising from guilt avoidance. 

Another possible explanation that I've previously published on is that, when people have limited attention, more information on topic A might distract people from a topic B, even though topic B ultimately has a larger impact on the consumers well-being.  

It may also be the case that people want to believe certain things.  They derive satisfaction from holding onto certain beliefs and will avoid information that challenges them.  These ideas and more are discussed by Russell Golman, David Hagmann and George Loewenstein in a nice review paper on what they call "information avoidance" for the Journal of Economic Literature.

A graduate student in our department, Eryn Bell, has been working with Bailey Norwood to apply some of these concepts to the topic of animal welfare.  They conducted a survey of 1,000 Oklahomans and asked them one of the two simple questions shown below.  Depending on how the question was asked, from 24% to 44% of respondents self declared that they would rather NOT know how hogs are raised.  The primary reasons given for this response were that farmers were trusted (a belief consumers may prefer to hold), that there are more important issues to worry about (limited attention), and guilt aversion. 

In the same survey, Bell and Norwood also included a set of questions based on some ideas I suggested.  The question gave respondents the option to see a picture of how sows are raised or to simply see a blank screen for a certain period of time.  People were divided into three groups that varied how long they had to see the blank screen.  The idea was that we could use the waiting time as a "cost", which would allow us to ask: how long are people willing to wait to NOT receive free information?  As it turns out, people weren't very sensitive to the waiting time.  Nonetheless, regardless of the waiting time, about a third of respondents preferred to see an uninformative blank screen as opposed to a more informative screenshot of sow housing.  These findings suggest at least some people, at least some of the time, would prefer not to know.