Skip to content
Licensed Unlicensed Requires Authentication Published by De Gruyter November 19, 2015

The Role of Knowledge in Choice, Valuation, and Outcomes for Multi-Attribute Goods

Christopher R. Gustafson

Abstract

Though the number of choices that individuals routinely must make has proliferated, comparatively little attention has been paid in the economics literature to consumer – compared to expert – knowledge, and its role in facilitating valuation and affecting choice outcomes. In this article, I review relevant work in economics, and then focus on research on knowledge that has used wine as the object of interest. Psychologists and sensory scientists have studied the role of wine expertise in sensory perception and categorization, and I review this literature to suggest how knowledge might also affect valuation and choice in the wine market. I finish by describing three recent studies on the role of knowledge in consumer valuation, information use, and choice outcomes in the American wine market. All three studies provide strong evidence that consumer knowledge is an important variable to consider in markets for differentiated products. Knowledge allows people to make greater use of objective label information when valuing wine in an experimental auction context, with high knowledge participants updating their bids more after participants received new information. In a field experiment, we find that high knowledge consumers derive greater value when selecting wines from a substantial inventory than do low knowledge consumers.

References

Agnew, J. R., and L. R. Szykman. 2005. “Asset Allocation and Information Overload: The Influence of Information Display, Asset Choice, and Investor Experience.” The Journal of Behavioral Finance 6 (2):57–70.10.1207/s15427579jpfm0602_2Search in Google Scholar

Akerlof, G. A. 1970. “The Market for “Lemons”: Quality Uncertainty and the Market Mechanism.” The Quarterly Journal of Economics 84 (3):488–500.10.2307/1879431Search in Google Scholar

Bajari, P., and A. Hortacsu. 2003. “The Winner’s Curse, Reserve Prices, and Endogenous Entry: Empirical Insights From eBay Auctions.” RAND Journal of Economics 34 (2):329–55.10.2307/1593721Search in Google Scholar

Ballester, J., B. Patris, R. Symoneaux, and D. Valentin. 2008. “Conceptual Vs. Perceptual Wine Spaces: Does Expertise Matter?.” Food Quality and Preference 19 (3):267–76.10.1016/j.foodqual.2007.08.001Search in Google Scholar

Becker, G. M., M. H. DeGroot, and J. Marschak. 1964. “Measuring Utility by a Single‐Response Sequential Method.” Behavioral Science 9 (3):226–32.10.1002/bs.3830090304Search in Google Scholar

Bende, M., and S. Nordin. 1997. “Perceptual Learning in Olfaction: Professional Wine Tasters Versus Controls.” Physiology & Behavior 62 (5):1065–70.10.1016/S0031-9384(97)00251-5Search in Google Scholar

Botti, S., and S. S. Iyengar. 2006. “The Dark Side of Choice: When Choice Impairs Social Welfare.” Journal of Public Policy & Marketing 25 (1):24–38.10.1509/jppm.25.1.24Search in Google Scholar

Boudreaux, C. A., and S. E. Palmer. 2007. “A Charming Little Cabernet: Effects of Wine Label Design on Purchase Intent and Brand Personality.” International Journal of Wine Business Research 19 (3):170–86.10.1108/17511060710817212Search in Google Scholar

Camerer, C., L. Babcock, G. Loewenstein, and R. Thaler. 1997. “Labor Supply of New York City Cabdrivers: One Day at a Time.” The Quarterly Journal of Economics 112 (2):407–41.10.1162/003355397555244Search in Google Scholar

Casini, L., A. Cavicchi, and A. M. Corsi. 2008. “Trends in the British Wine Market and Consumer Confusion.” British Food Journal 110 (6):545–58.10.1108/00070700810877870Search in Google Scholar

Darby, M. R., and E. Karni. 1973. “Free Competition and the Optimal Amount of Fraud.” Journal of Law and Economics 16 (1):67–88.10.1086/466756Search in Google Scholar

Dewan, S., and V. Hsu. 2004. “Adverse Selection in Electronic Markets: Evidence From Online Stamp Auctions.” Journal of Industrial Economics 52 (4):497–516.10.1111/j.0022-1821.2004.00237.xSearch in Google Scholar

Dinner, I., E. J. Johnson, D. G. Goldstein, and K. Liu. 2011. “Partitioning Default Effects: Why People Choose Not to Choose.” Journal of Experimental Psychology: Applied 17 (4):332.10.1037/a0024354Search in Google Scholar

Drummond, G., and G. Rule. 2005. “Consumer Confusion in the UK Wine Industry.” Journal of Wine Research 16 (1):55–64.10.1080/09571260500236633Search in Google Scholar

D’Alessandro, S., and A. Pecotich. 2013. “Evaluation of Wine by Expert and Novice Consumers in the Presence of Variations in Quality, Brand and Country of Origin Cues.” Food Quality and Preference 28:287–303.10.1016/j.foodqual.2012.10.002Search in Google Scholar

Feng, L., and M. S. Seasholes. 2005. “Do Investor Sophistication and Trading Experience Eliminate Behavioral Biases in Financial Markets?” Review of Finance 9 (3):305–51.10.1007/s10679-005-2262-0Search in Google Scholar

Frøst, M. B., and A. C. Noble. 2002. “Preliminary Study of the Effect of Knowledge and Sensory Expertise on Liking for Red Wines.” American Journal of Enology and Viticulture 53 (4):275–84.Search in Google Scholar

Gustafson, C. R. 2015. Knowledge and the Value of Choice. Manuscript in preparation.Search in Google Scholar

Gustafson, C. R., T. J. Lybbert, and D. A. Sumner. 2015. Does consumer knowledge impact valuation of product attributes? Manuscript submitted for publication.10.1016/j.socec.2016.08.004Search in Google Scholar

Gustafson, C. R., T. J. Lybbert, and D. A. Sumner. In press. “Consumer Sorting and Hedonic Valuation of Wine Attributes: Exploiting Data From a Field Experiment.” Agricultural Economics.10.1111/agec.12212Search in Google Scholar

Güth, W., R. Ivanova‐Stenzel, M. Königstein, and M. Strobel. 2003. “Learning to Bid–an Experimental Study of Bid Function Adjustments in Auctions and Fair Division Games*” The Economic Journal 113 (487):477–94.10.1111/1468-0297.00123Search in Google Scholar

Hanoch, Y., T. Rice, J. Cummings, and S. Wood. 2009. “How Much Choice Is Too Much? the Case of the Medicare Prescription Drug Benefit.” Health Services Research 44 (4):1157–68.10.1111/j.1475-6773.2009.00981.xSearch in Google Scholar

Hensher, D. A. 2006. “How Do Respondents Process Stated Choice Experiments? Attribute Consideration Under Varying Information Load.” Journal of Applied Econometrics 21:861–78.10.1002/jae.877Search in Google Scholar

Hilger, J., G. Rafert, and S. Villas-Boas. 2011. “Expert Opinion and the Demand for Experience Goods: An Experimental Approach in the Retail Wine Market.” Review of Economics and Statistics 93 (4):1289–96.10.1162/REST_a_00117Search in Google Scholar

Hughson, A. L., and R. A. Boakes. 2001. “Perceptual and Cognitive Aspects of Wine Expertise.” Australian Journal of Psychology 53 (2):103–8.10.1080/00049530108255130Search in Google Scholar

Hughson, A. L., and R. A. Boakes. 2002. “The Knowing Nose: The Role of Knowledge in Wine Expertise.” Food Quality and Preference 13 (7):463–72.10.1016/S0950-3293(02)00051-4Search in Google Scholar

Iyengar, S. S., G. Huberman, and W. Jiang. 2004. “How Much Choice Is Too Much? Contributions to 401 (k) Retirement Plans.” In Pension Design and Structure: New Lessons From Behavioral Finance, edited by O. S. Mitchell and S. Utkus, 83–95. Oxford: Oxford University Press.10.1093/0199273391.003.0005Search in Google Scholar

Iyengar, S. S., and E. Kamenica. 2010. “Choice Proliferation, Simplicity Seeking, and Asset Allocation.” Journal of Public Economics 94 (7):530–9.10.1016/j.jpubeco.2010.03.006Search in Google Scholar

Iyengar, S. S., and M. R. Lepper. 2000. “When Choice Is Demotivating: Can One Desire Too Much of a Good Thing?” Journal of Personality and Social Psychology 79 (6):995–1006.10.1017/CBO9780511618031.017Search in Google Scholar

Kagel, J. H., and D. Levin. 1986. “The Winner’s Curse and Public Information in Common Value Auctions.” American Economic Review 76 (5):894–920.10.1515/9781400830138.107Search in Google Scholar

Kostandini, G., E. Mykerezi, E. Tanellari, and N. M. Dib. 2011. “Does Buyer Experience Pay Off? Evidence From eBay.” Review of Industrial Organization 39 (3):253–65.10.1007/s11151-011-9304-xSearch in Google Scholar

Lacetera, N., D. G. Pope, and J. R. Sydnor. 2012. “Heuristic Thinking and Limited Attention in the Car Market.” American Economic Review 102 (5):2206–36.10.3386/w17030Search in Google Scholar

Lawless, H. T. 1984. “Flavor Description of White Wine by “Expert” and Nonexpert Wine Consumers.” Journal of Food Science 49 (1):120–3.10.1111/j.1365-2621.1984.tb13686.xSearch in Google Scholar

List, J. A. 2003. “Does Market Experience Eliminate Market Anomalies?” The Quarterly Journal of Economics 118 (1):41–71.10.1162/00335530360535144Search in Google Scholar

Lusk, J. L., and J. F. Shogren. 2007. Experimental Auctions: Methods and Applications in Economic and Marketing Research. CNew York, NY: Cambridge University Press.10.1017/CBO9780511611261Search in Google Scholar

Madrian, B. C., and D. F. Shea. 2001. “The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior.” The Quarterly Journal of Economics 116 (4):1149–87.10.3386/w7682Search in Google Scholar

Miller, L. M. S., and D. L. Cassady. 2012. “Making Healthy Food Choices Using Nutrition Facts Panels. the Roles of Knowledge Motivation, Dietary Modifications Goals, and Age.” Appetite 59:129–39.10.1016/j.appet.2012.04.009Search in Google Scholar

Mogilner, C., T. Rudnick, and S. S. Iyengar. 2008. “The Mere Categorization Effect: How the Presence of Categories Increases Choosers’ Perceptions of Assortment Variety and Outcome Satisfaction.” Journal of Consumer Research 35 (2):202–15.10.1086/588698Search in Google Scholar

Mueller, S., L. Lockshin, Y. Saltman, and J. Blanford. 2010. “Message on a Bottle: The Relative Influence of Wine Back Label Information on Wine Choice.” Food Quality and Preference 21 (1):22–32.10.1016/j.foodqual.2009.07.004Search in Google Scholar

Nelson, P. 1970. “Information and Consumer Behavior.” Journal of Political Economy 78 (2):311–29.10.1086/259630Search in Google Scholar

Piqueras-Fiszman, B., and C. Spence. 2012. “The Weight of the Bottle as a Possible Extrinsic Cue with Which to Estimate the Price (and Quality) of the Wine? Observed Correlations.” Food Quality and Preference 25 (1):41–5.10.1016/j.foodqual.2012.01.001Search in Google Scholar

Rangel, A. 2013. “Regulation of Dietary Choice by the Decision-Making Circuitry.” Nature Neuroscience 16 (12):1717–24.10.1038/nn.3561Search in Google Scholar

Reinstein, D. A., and C. M. Snyder. 2005. “The Influence of Expert Reviews on Consumer Demand for Experience Goods: A Case Study of Movie Critics*” The Journal of Industrial Economics 53 (1):27–51.10.1111/j.0022-1821.2005.00244.xSearch in Google Scholar

Reutskaja, E., and R. M. Hogarth. 2009. “Satisfaction in Choice as a Function of the Number of Alternatives: When “Goods Satiate”.” Psychology and Marketing 26 (3):197–203.10.1002/mar.20268Search in Google Scholar

Reutskaja, E., R. Nagel, C. F. Camerer, and A. Rangel. 2011. “Search Dynamics in Consumer Choice Under Time Pressure: An Eye-Tracking Study.” American Economic Review 101 (2):900–26.10.1257/aer.101.2.900Search in Google Scholar

Rosen, S. 1974. “Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition.” Journal of Political Economy 82 (1):34–55.10.2307/j.ctv1kz4h99.5Search in Google Scholar

Solomon, G. E. A. 1990. “Psychology of Novice and Expert Wine Talk.” American Journal of Psychology 103 (4):495–517.10.2307/1423321Search in Google Scholar

Solomon, G. E. A. 1997. “Conceptual Change and Wine Expertise.” The Journal of the Learning Sciences 6 (1):41–60.10.1207/s15327809jls0601_3Search in Google Scholar

Sáenz-Navajas, M. P., E. Campo, A. Sutan, J. Ballester, and D. Valentin. 2013. “Perception of Wine Quality According To Extrinsic Cues: The Case of Burgundy Wine Consumers.” Food Quality and Preference 27 (1):44–53.10.1016/j.foodqual.2012.06.006Search in Google Scholar

TTB (Alcohol and Tobacco Tax and Trade Bureau). 2015a. “Wine Appellations of Origin.” Accessed August 11, 2015, http://www.ttb.gov/appellation/index.shtml.Search in Google Scholar

TTB (Alcohol and Tobacco Tax and Trade Bureau). 2015b. “Wine Producers and Blenders Permit List.” Accessed August 11, 2015, http://www.ttb.gov/foia/frl.shtml.Search in Google Scholar

USDA ERS. (2013). “Processing and Marketing: New Products.” Accessed July 15, 2015, www.ers.usda.gov/topics/food-markets-prices/processing-marketing/new-products.aspx.Search in Google Scholar

USDA NASS. (2015). “Grape Crush Bulletins: Table 1.” Accessed August 6, 2015, http://www.nass.usda.gov/Statistics_by_State/California/Publications/Grape_Crush/Final/index.aspSearch in Google Scholar

Verbeke, W. 2005. “Agriculture and the Food Industry in the Information Age.” European Review of Agricultural Economics 32 (3):347–68.10.1093/eurrag/jbi017Search in Google Scholar

Wansink, B., and J. Sobal. 2007. “Mindless Eating the 200 Daily Food Decisions We Overlook.” Environment and Behavior 39 (1):106–23.10.1177/0013916506295573Search in Google Scholar

Published Online: 2015-11-19
Published in Print: 2015-1-1

©2015 by De Gruyter