Consumers may be willing to pay a premium for certain genetically modified foods if they are told of the potential health benefits they may receive from eating those foods, according to a recent Purdue University study.

The findings also indicated that a marketing survey method called "cheap talk" can be used in mail surveys to yield more accurate results.

Jayson Lusk, associate professor of agricultural economics and author of the study, used a mail survey to assess how much consumers are willing to pay for a genetically modified, or GM, food called golden rice. His paper appears in the November issue of the American Journal of Agricultural Economics.

Lusk found that regardless of demographic factors, including age, gender, income and level of education, consumers may be willing to pay more for the GM golden rice versus a non-GM white rice, if they perceive a direct personal benefit from the GM product.

"This study is one of the first to show that people are willing to pay a premium for a food that's been improved using biotechnology," Lusk said. "People value this product such that they are willing to pay more for it."

Golden rice, which is not yet commercially available, contains a daffodil gene that produces a compound the human body converts to vitamin A. Lusk provided background information about golden rice to all survey participants.

Lusk said consumers in previous studies indicated they would pay a premium for foods that had not been genetically modified — the exact opposite of what he found in this study. He attributes that difference to this study's emphasis on the potential benefits of golden rice from a consumer's, rather than a producer's, point of view.

"The first generation of GM products came from technologies that tended to benefit farmers, like Roundup Ready crops and Bt corn," Lusk said. "Consumers don't see a lot of benefit from those products except for perhaps a very small decrease in price. Other than that, consumers have been asked to take a risk without any benefit to them at all," he said.

Lusk said the next generation of GM foods will be those like golden rice that provide direct benefits, such as improved nutritional quality or enhanced shelf life, to the consumer. As the biotechnology industry shifts more of its promotion effort to these second generation crops, he said producers will need to know if consumers will be more accepting of GM foods that offer benefits to them.

"While consumers might perceive somewhat of a risk with GM foods, they may also see a benefit. In this study, it appears that the nutritional benefits of a GM food outweigh their perception of risk," he said.

This study also demonstrates a technique that may be useful in minimizing preconceived assumptions held by consumers when surveyed in marketing research, Lusk said. This may help marketing professionals more accurately predict consumer behavior, he said.

Marketing research is often done in a hypothetical setting, in which consumers are surveyed about their attitudes regarding a given product without any obligation to purchase it.

Participants in marketing studies tend to misrepresent consumer behavior in these hypothetical situations, Lusk said. This misrepresentation is especially widespread in surveys that question willingness-to-pay, an attribute that measures how much consumers would pay for a given product, he said.

"Any economist will tell you that people have incentives to misrepresent their preferences in a survey," Lusk said. "If you really like a product that you see in a survey, you might think it will be made commercially available sooner if you say you like it more than you really do."

Economists call this tendency for survey participants to misrepresent their true opinions hypothetical bias.

In this study, Lusk assessed whether applying a technique called cheap talk could reduce consumer hypothetical bias when responding to survey questions about willingness-to-pay a premium for golden rice. Cheap talk, in this context, describes a process researchers use to make survey participants aware of hypothetical bias, with the goal of reducing or eliminating this type of bias from their responses.

Other researchers have shown cheap talk can remove hypothetical bias in a lab setting, but this is the first study to apply cheap talk in a mass mail survey, Lusk said.

Lusk provided half of the participants in the survey with a script that first described hypothetical bias, then asked them to answer the survey questions as realistically as they could.

The other half of participants received no cheap talk information about hypothetical bias.

Lusk found survey participants not presented with cheap talk were willing to pay nearly twice as much of a premium for the same product as those who received cheap talk.

Participants who did not receive this information indicated they would pay a premium of 30 cents per pound, while those who received the cheap talk information were willing to pay only a 17-cent premium per pound of golden rice.

"Hypothetical bias can cause consumers to overstate by two to three times the real amount they are willing to pay for a product," he said.

Lusk said these findings could be useful to individuals involved in marketing research, who often rely on similar surveys. "Whether people are truthfully responding to this hypothetical question is an important issue in marketing, especially in marketing new products," he said.

"Unless they account for these biases, marketers will tend to predict that products will be more successful than they really will be once they become commercially available."

ABSTRACT

Effects of cheap talk on consumer willingness-to-pay for golden rice
by Jayson Lusk

A large body of literature suggests willingness-to-pay is overstated in hypothetical valuation questions as compared to when actual payment is required. Recently, "cheap talk" has been proposed to eliminate the potential bias in hypothetical valuation questions. Cheap talk refers to the process of explaining hypothetical bias to individuals prior to asking a valuation question. This study explored the effect of cheap talk in a mass mail survey using a conventional value elicitation technique. Results indicate that cheap talk was effective at reducing willingness-to-pay for most survey participants; however, consistent with previous research, cheap talk did not reduce willingness-to-pay for knowledgeable consumers.