Framing Influences Willingness to Pay but Not Willingness to Accept
YANG YANG, JOACHIM VOSGERAU, and GEORGE LOEWENSTEIN*
The authors show, with real and hypothetical payoffs, that consumers are willing to pay substantially less for a risky prospect when it is called a "lottery ticket," "raffle," "coin flip," or "gamble" than when it is labeled a "gift certificate" or "voucher." Willingness to accept, in contrast, is not affected by these frames. This differential framing effect is the result of an aversion to bad deals, which causes buyers to focus on different aspects than sellers. Buyers' willingness to pay is influenced by the extent to which a risky prospect's frame is associated with risk (Experiment 1) as well as the prospect's lowest (but not highest) possible outcome (Experiment 2). Sellers' willingness to accept, in contrast, is influenced by a prospect's lowest and highest possible outcomes but not by the risk associated with its frame (Experiments 2 and 3). The framing effect on willingness to pay is independent of the objective level of uncertainty (Experiment 4) and can lead to the uncertainty effect. The findings have important implications for research on risk preferences and marketing practice.
Keywords: framing, willingness to pay, willingness to accept, endowment effect, uncertainty effect
Online Supplement: http://dx.doi.org/10.1509/jmr.12.0430
Framing Influences Willingness to Pay but Not Willingness to Accept
Every day, consumers are faced with decisions that entail In addition to gain/loss frames, decision researchers and uncertainty, whether as mundane as purchasing a lottery marketing practitioners use other frames to describe risky ticket or as consequential as buying a house. Prior research prospects, such as "lottery," "raffle," "coin flip," "gamble," has shown that the choices consumers make are dramatically "voucher," or "uncertain gift certificate." We investigate influenced by how risky prospects are framed. For example, how these frames influence consumers' willingness to pay the same prospect framed as a gain makes consumers risk (WTP) and willingness to accept (WTA). The risky prospects averse—unless outcomes or probabilities are very small — we use in our experiments are two-outcome gambles with a whereas framing it as a loss leads to risk-seeking behavior 50% chance of a low and a 50% chance of a high outcome. (Tversky and Kahneman 1981). In four experiments, we hypothesize and demonstrate that the more a prospect's frame is associated with risk and the lower a prospect's low (but not high) possible outcome, the lower people's WTP. We hypothesize that WTA, in contrast, *Yang Yang is a doctoral student in Marketing, Tepper School of Busi- ness (e-mail: [email protected]), and George Loewenstein is Herbert S. Simon will not be affected by how the prospect is framed but will Professor of Psychology and Economics, Department for Social and Deci- instead depend on a prospect's low and high possible out- sion Sciences (e-mail: [email protected]), Carnegie Mellon Univer- comes. These hypotheses are based on previous research sity. Joachim Vosgerau is Professor of Marketing, School of Economics showing that buyers and sellers tend to focus on different and Management, Tilburg University (e-mail: [email protected]). The authors thank Jeff Galak and members of the weekly experimental lab aspects of a potential transaction (Carmon and Ariely 2000; meeting at the Department for Social and Decision Sciences at Carnegie Isoni 2011 ; Johnson, Häubl, and Keinan 2007; Weaver and Mellon University for helpful di.scussions. The authors also thank the Frederick 2012). review team for their constructive feedback. Correspondence should be addressed to the first author. This article is part of the first author's disser- We further show that the differential framing effect can tation. Stephen Nowlis served as associate editor for this article. produce —and thus help explain —an important anomaly: calling a certain prospect a "gift certificate" and a risky
© 2013, American Marketing Association Journal of Marketing Research ISSN: 0022-2437 (print), 1547-7193 (electronic) 725 Vol. L (December 2013), 725-738 726 JOURNAL OF MARKETING RESEARCH, DECEMBER 2013 prospect a "lottery ticket" can lead to the uncertainty effect tial exchange. Consider a prospect that with a 50% chance (UE), whereby the risky prospect is valued less than its low- will yield a $50 gift certificate and with 50% chance a $100 est possible outcome (Gneezy, List, and Wu 2006). We con- gift certificate. For buyers, a bad deal would be paying more clude with a discussion of implications for research on risk than the prospect's lowest possible outcome and then learn- preferences and marketing practice. ing that the lowest outcome was realized. Bad-deal aversion causes buyers to be highly sensitive to the prospect's lowest THFORFTICAL BACKGROUND (but not highest) possible outcome. In general, bad-deal Decision researchers originally used framing to describe aversion sensitizes buyers to the negative aspects of the a situation in which equivalent choices between prospects risky prospect—a form of extreme risk aversion. This were cast in terms of either gains or losses. In the famous extreme risk aversion may even apply to otherwise irrele- "Asian disease problem," participants exhibited risk aver- vant negative aspects of the prospect, such as its subjective sion when outcomes were framed as gains but displayed level of risk. A prospect framed as "lottery," "gamble," "raf- risk-seeking behavior when the same objective outcomes fle," or "coin flip" is more associated with risk than a were framed as losses (Tversky and Kahneman 1981). In prospect framed as "gift certificate" or "voucher." Conse- general, people respond more favorably to gambles when quently, WTP may be lower the more a prospect's frame is probabilities are framed as chances of winning than as associated with risk, even though a prospect's label clearly chances of losing (e.g.. Levin, Snyder, and Chapman 1988; has no influence on the prospect's objective level of uncer- Vosgerau2010). tainty (McGraw, Shafir, and Todorov 2010). This form of Moving beyond gain/loss frames, other researchers have extreme risk aversion may be equivalent to what Simonsohn investigated framing effects that result from how prospects (2009) has called "direct risk aversion." are labeled. Decision makers are willing to incur a sure loss The situation is very different for sellers, however. For when it is framed as an insurance premium but are less will- sellers, a bad deal would be selling the prospect at a price ing to do so when the sure loss is incurred in a gamble (Her- lower than its market value. Given that market prices are not shey, Kunreuther, and Schoemaker 1982; Schoemaker and readily available—especially for risky prospects—a seller Kunreuther 1979). Consumers evaluate ground beef more may use the prospect's expected value as a starting point for favorably when it is described as 75% lean than 25% fat determining her or his WTA. In this sense, we hypothesize (Levin and Gaeth 1988). Framing also elicits social norms sellers to be less risk averse than buyers in their valuation of (e.g., competitive, selfish, or cooperative behavior) in eco- the potential transaction.' nomic games (Eiser and Bhavnani 1974). Research has Our bad-deal aversion account leads to two key predic- found cooperation and contribution to be greater when pris- tions: First, the more a prospect's frame is associated with oner's dilemma or public goods games are given labels such risk and the lower the prospect's lowest possible outcome, as "social exchange," "international negotiation," "interper- the lower WTP will be. The prospect's highest possible out- sonal interaction," or "community game" than when they come, in contrast, should influence WTP to a much lesser are labeled "business transaction," "economic bargaining," extent. Second, WTA should be influenced by both a or "Wall Street game" (Eiser and Bhavnani 1974; Liberman, prospect's lowest and highest possible outcomes, but the Samuels, and Ross 2004; Rege and Telle 2004). prospect's frame should influence WTA to a much lesser We investigate the influence of the frames "lottery," "raf- extent. fle," "gamble," "coin flip," "gift certificate," and "voucher" We test our bad-deal aversion account in four experi- (frequently used by decision researchers and marketing ments. Using real payoffs. Experiment 1 shows that framing practitioners) on buying and selling prices for risky (as well a risky prospect as a "lottery ticket" compared with an as riskless) prospects. Because these frames differ in the uncertain "gift certificate" substantially reduces WTP. extent to which they are associated with risk, we hypothe- Experiment 2 tests and finds support for the two predictions size that they influence WTP but not WTA. We argue that of our account: WTP is influenced by both framing and the this differential framing effect is the result of an aversion to lowest possible outcome of a risky prospect. The highest bad deals (Monroe 1973; Thaler 1985; Winer 1986), which possible outcome does not affect WTP. Willingness to causes buyers and sellers to focus on different aspects of a potential transaction (Carmon and Ariely 2000; Isoni 2011; accept, in contrast, is influenced by both a prospect's lowest Johnson, Häubl, and Keinan 2007; Weaver and Frederick and highest possible outcomes. Framing does not influence 2012). Speciflcally, Isoni (2011) and Weaver and Frederick WTA. Experiment 3 examines whether the differential (2012) propose that an aversion to bad deals causes the framing effect for WTP and WTA extends to other descrip- endowment effect. For buyers, a bad deal would mean pur- tions that emphasize risk ("coin flip," "gamble," and "raf- chasing an item at a price higher than the market price. Con- fle") or that do not ("voucher"). In Experiment 4, we test sequently, buyers are only willing to pay up to the market whether the framing effect for WTP exists for riskless price or their own valuation of the item, whichever is lower. prospects. For sellers, a bad deal would be selling an item at a price In combination, the experimental results provide a new lower than the market price. Therefore, sellers are only will- account for the UE (Gneezy, List, and Wu 2006), a well- ing to accept prices that are higher than—or at least equal to —the market price or their own valuation of the item, 'Our hypothesis that buyers are more risk averse than sellers may seem whichever is higher. at odds with Okada's (2010) fmding that buyers and sellers do not differ in their aversion to risk. However, Okada assessed general aversion to risk We argue that when evaluating a risky prospect rather (and found no differences between buyers and sellers), whereas we pro- than a sure prospect, aversion to bad deals similarly causes pose that buyers are more risk averse than sellers in their evaluation of the buyers and sellers to focus on different aspects of the poten- potential transaction. Framing Influences Willingness to Pay 727 documented phenomenon in which a risky prospect is val- beginning of the experiment. Participants could start the ued less than its lowest possible outcome. We find that the experiment only after they had correctly answered the UE occurs only when the frame of the prospect's lowest instructional manipulation check. Finally, to check whether possible outcome is not associated with risk (e.g., a "gift participants erroneously believed that $0 was a possible certificate" or "voucher") and the frame of the strictly domi- payoff, participants were asked, "What was the lowest pos- nating risky prospect is highly associated with risk (e.g., a sible outcome of the offer?" and chose an answer from the "lottery," "gamble," "coin flip," or "raffle"). In contrast, values $0, $5, $10, $15, and $20 (Simonsohn 2009). The when the lowest possible outcome and the risky prospect experiment concluded with participants answering demo- are framed similarly, the UE does not occur. We conclude graphic questions. with a discussion of the implications of our findings for research on risk preferences and marketing practice. Results In all our experiments, we follow the methodological Forty-seven participants (75.8%) in the gift card condition guidelines Simmons, Nelson, and Simonsohn (2011) pro- and 54 participants (94.7%) in the lottery condition correctly pose: We report all measures used in each experiment. All indicated that the $10 gift card was the lowest possible out- experiments have at least 20 participants per condition, and come (X^Cl) = 8.86,/7 = .012). In the subsequent analysis, we analyzed data only after data collection was finished. To we only considered responses of those who answered this avoid the possibility of deciding ex post which data points question correctly. The results do not change when all to include, we adopted the same exclusion criteria for all responses are included. experiments. Because distributions of WTP typically deviate from nor- EXPERIMENT I: FRAMING EFFECT ON WTP WTTH mality, we test our hypotheses parametrically with F- and t- REAL PAYOFFS tests and compare distributions nonparametrically. Partici- pants in the lottery condition were willing to pay less (M = The purpose of Experiment 1 was to determine whether $5.68, SD = $6.69, Mdn = $5.00) than participants in the framing a risky prospect as a lottery ticket versus an uncer- gift card condition (M - $9.52, SD - $4.48, Mdn - $ 7.50; tain gift certificate would influence WTP. Participants were t(99) = 3.43,p < .001, Tip2 = .11; z = 2.93,i- = .003; see Fig- asked to indicate their WTP for a risky prospect, which was ure 1). called either a "lottery ticket" or an uncertain "gift certifi- cate." In a pretest, participants rated the extent to which they Discussion associated "lottery ticket" and "gift certificate" (between- Consistent with our hypothesis that buyers are susceptible subjects) with risk and uncertainty on two seven-point scales (1 = "not at all," and 7 = "very much"). Because the two rat- to the risk associated with a frame, participants were willing ings were highly correlated, we created a risk-association to pay less for the risky prospect when it was called a lot- measure by averaging them (Cronbach's a = .81). Partici- tery ticket than when it was called an uncertain gift card. pants rated the lottery frame as being more associated with The lottery frame reduced WTP by more than 40%, even risk and uncertainty than the gift certificate frame (Mjottery = though WTP was elicited in the same incentive-compatible 5.94, Mgift certificate = 2.44; t(50) = 10.32, p < .001). We fashion (five participants were randomly selected and therefore expected WTP to be lower under the lottery frame received the $20 bonus payment; however, none of them than the gift certificate frame. Figure 1 Method EXPERIMENT 1 : CUMULATIVE RELATIVE FREQUENCY One hundred nineteen participants (50.4% male; M^ge = DISTRIBUTION OF WTP UNDER THE LOTTERY AND GIFT 32.61 years, SD = 10.35 years) from Amazon.com's CERTIFICATE FRAME Mechanical Turk (MTurk) participated in this experiment in exchange for $.20. Participants were asked to indicate their WTP for a risky prospect that was framed as either a lottery 1 UU/O " ticket or an uncertain gift card. We adapted the instructions ic y f from Simonsohn (2009) and Cneezy, List, and Wu (2006) o 80% - (see Appendix A). In the lottery condition, the lottery ticket 3 / / would for sure yield either a $10 or a $20 Best Buy gift card -re q (both equally likely). In the gift card condition, the gift card § 60% • 1 ; would be either a $10 or a $20 Best Buy gift card (both ílat i equally likely). Participants were told that we would ran- W / ---' Œ 40% - domly select five respondents to get a $20 bonus and an 0>} h opportunity to purchase a lottery ticket or a gift card. If their tZ — — Gift certificate S WTP was above our reservation price (our reservation price i 20% - •^^ Lottery was not revealed to participants), they would buy the lottery ü ticket or gift card at our reservation price. If their WTP was below our reservation price, they would not buy the lottery $0 $5 ticket or gift card (Cneezy, List, and Wu 2006). $10 $15 $20 WTP To detect participants who did not pay attention to the instructions, we administered an instructional manipulation Notes: Curves toward the upper-left comer represent low valuations, and check (Oppenheimer, Meyvis, and Davidenko 2009) at the curves toward the lower-right corner represent high valuations. 728 JOURNAL OF MARKETING RESEARCH, DECEMBER 2013 ended up buying the risky prospect because their WTPs answered the instructional manipulation check and compre- were all lower than our reservation price of $15). hension question. Figure 1 illustrates that approximately 20% of partici- pants in the gift card (but not the lottery) condition valued Results the risky prospect above $15, its expected value. It seems One hundred ninety-seven participants (97.0%) in the gift that there is considerable heterogeneity in risk attitudes, certificate conditions and 198 (92.1%) in the lottery condi- especially when the frame of the risky prospect is not asso- tions correctly indicated the worst possible outcome (x^(l) = ciated with risk. We observed similar patterns in other 4.92,p - .04). In the subsequent analysis, we only consid- experiments. ered those who answered this question correctly. The results do not change when all responses are included. EXPERIMENT 2: TESTING DIFFERENTIAL EFFECTS A 2 (frame: gift certificate vs. lottery ticket) x 3 (out- ONWTPANDWTA comes of risky prospect: $25 or $100 vs. $50 or $100 vs. Experiment 1 tested our bad-deal aversion account (i.e., $50 or $200) X 2 (endowment status: buyer vs. seller) analy- buyers focus on negative aspects and are risk averse in their sis of variance (ANOVA) on WTP/WTA revealed a main valuation of a potential transaction) by showing that a frame effect for frame (F(l, 383) = 6.88,/7= .009,r|^= .02; z = associated with risk decreases WTP. Our account also pre- 2.72, p = .007), a main effect for outcome (F(2, 383) = dicts that because buyers are risk averse, they will be sensi- 34.52,;? < .001,ri^= .15; H(2) = 54.91,/? < .001), and a tive to the low (but not the high) outcome of a risky main effect for status (F(l, 383) = 76.87,p < .001, ri^ = .17; prospect. Sellers, in contrast, are less risk averse than buy- z== 7.37,;?<.001). ers because they try to sell the risky prospect at or above its More importantly, the interaction of status and frame was market value and use the prospects' expected value as a significant (F(l, 383) = 6.33,/?= .012,rip= .02), indicating starting point for determining their WTA. Consequently, that the lottery frame reduced WTP but not WTA for each WTA should be sensitive to the low and high possible out- level of the prospects' outcomes (for means, medians, and comes of a risky prospect, but it should be insensitive to a pairwise comparisons, see Table 1). Furthermore, the inter- prospect's label (i.e., how much risk is associated with the action of status and outcome was significant (F(2, 383) = 7.5 2, /? = .001, T) p = .04), indicating that the prospects ' out- prospect's frame). To test these predictions, in Experiment come levels affected WTP and WTA differently (see Figure 2, we orthogonally manipulated framing and the low and 2). No other effects were significant (all Fs < 1). high outcomes of the risky prospect. To determine whether WTA (but not WTP) is sensitive to Method the high outcome of a risky prospect, we held the low out- come constant at $50 and conducted a 2 (outcomes: $50 or Four hundred eighteen participants (62.7% male, 37.1% $100 vs. $50 or $200) x 2 (endowment status: buyer vs. female, .2% unknown; M^g^ = 30.30 years, SD = 10.71 seller) ANOVA on WTP/WTA. The analysis yielded a main years) from MTurk participated in this experiment in effect ofoutcome(F( 1,292)= 15.94,/? < .001,ri^= .05), a exchange for $.20. The experiment used a 2 (frame: gift cer- main effect of status (F( 1 292) = 61.71, /? < .001, Tl^ = . 17), tificate vs. lottery ticket) x 3 (outcomes: $25 or $100 vs. and an interaction of outcome and status (F(l, 292) = 9.91, $50 or $100 vs. $50 or $200) x 2 (endowment status: buyer /? = .002, r|p = .03). In support of our hypothesis, WTA was vs. seller) between-subjects design. Participants were asked higher when the high outcome was $200 than $100 ($74.45 to indicate their WTP/WTA for a lottery ticket/gift certifi- vs. $50.21, respectively; t(147) = 4.07,/? < .001, rip = .10; z = cate that would either be a $25 or $100/a $50 or $100/a $50 2.77,/? = .006). Participants' WTP did not differ ($37.11 vs. or $200 Barnes & Noble gift certificate (both equally $34.24, respectively; t(145) = .90, p - .37, Tip = .01; z = likely). Participants not endowed with the risky prospect 1.32,/? =.19). (buyers) indicated the highest amount of money they would To determine whether both WTA and WTP are sensitive be willing to pay for it (WTP), and participants endowed to the low outcome of a risky prospect, we held the high with the risky prospect (sellers) indicated the lowest amount outcome constant at $100 and conducted a 2 (outcomes: $25 of money they would accept to sell it (WTA). Appendix B or $100 vs. $50 or $100) x 2 (endowment status: buyer vs. presents the instructions. As in Experiment 1, participants seller) ANOVA on WTP/WTA. The analysis yielded a main
Table 1 EXPERIMENT 2: PAIRWISE COMPARISONS OF WTP/WTA ACROSS FRAMES
Lottery Gift Certificate Status Outcome N M(SD) Mdn N M(SD) Mdn t-Test Mann-Whitney WTP $25 vs. $100 26 $14.25 (11.84) $13.75 23 $23.04 (12.59) $25.00 2.52* 2.25* $50 vs. $100 35 $25.60 (18.30) $25.00 36 $42.64 (17.46) $50.00 4.01*** 3.71*** $50 vs. $200 36 $28.75 (21.07) $25.00 40 $44.62 (13.46) $50.00 3.95*** 3.23** WTA $25 vs. $100 24 $35.46 (17.60) $35.00 26 $36.40 (23.35) $25.00 .16 .32 $50 vs. $100 38 $50.74 (20.95) $50.00 37 $49.68 (21.51) $50.00 .22 .67 $50 vs. $200 39 $73.97 (44.13) $60.00 35 $74.97 (50.62) $50.00 .09 .56 *p<.05. **p<.0\. ***n<.001 (two-tailed). Framing Influences Willingness to Pay 729
Figure 2 come of the risky prospect did not influence WTP. Sellers EXPERIMENT 2: AVERAGE WTA/WTP AS A FUNCTION OF valued prospects more when the value of either the high or FRAMING AND OUTCOMES the low outcome was greater. The prospect's frame, in con- trast, had no influence on WTA. Together, the results of A: Buyers Experiment 2 lend strong support for our hypothesis that bad-deal aversion causes buyers to be sensitive to negative $80-1 aspects of a risky prospect (its lowest possible outcome and $50-$200 the subjective risk associated with it), whereas sellers are $70- $50-$100 sensitive to the aspects that determine the prospects' objective $25-$100 value (the prospect's lowest and highest outcomes). $60- The results of Experiment 2 also help rule out an alterna- $50- tive explanation for the observed framing effect: anchoring. According to this explanation, the lottery frame may make g $40- the usual price paid for lottery tickets more accessible, which may then serve as an anchor for valuations (Freder- $30- ick and Mochon 2012; Tversky and Kahneman 1974). $20- 1 Because lottery tickets tend to be inexpensive, anchoring on their usual price would shift WTP—and WTA—downward. $10- "i In Experiment 2, however, we observed the framing effect only for WTP and not for WTA, which makes it unlikely $0- that anchoring underlies the framing effect. Gift Certificate Lottery Frame Is the differential framing effect on WTP and WTA spe- cific to the frames "lottery" and "gift certificate"? We inves- B: Sellers tigate this possibility in Experiment 3.
$80-, EXPERIMENTS: TESTING THE DIFFERENTIAL T FRAMING EFFECT ON WTP/WTA WITH OTHER $70 - i FRAMES $60 - . Experiment 3 determines whether the differential fram- ing effect on WTP and WTA can be generalized to other $50- J. frames. We picked four additional frames that decision -I researchers and marketers frequently use to describe risky ^ $40- prospects: "voucher," "coin flip," "raffle," and "gamble." To examine how much each frame is associated with risk, $30- I- ••I we conducted a pretest in which 157 participants (64.3% $20 - $50-$200 male; M^gg = 29.70 years, SD = 10.01 years) rated the extent $50-$100 to which each of the six frames (between-subjects) is asso- $10 - $25-$100 ciated with risk and uncertainty on two seven-point scales (1 = "not at all," and 7 = "very much"; this is the same $0 - pretest used in Experiment 1). Bonferroni-corrected post Gift Certificate -Ottery hoc comparisons revealed no difference in risk associations Frame between the gift certificate and the voucher frame (p = 1.0). Notes: Error bars represent ±1 standard errors. The four remaining frames (coin flip, raffle, lottery ticket, and gamble) were all more associated with risk (ps < .001 ; effect of outcome (F(l,241)^36.30,/>< .001,11^= .13)and see Table 2). From these comparisons, we predicted that WTP would be lower under the coin flip, raffle, lottery a main effect of status (F(l, 241) = 45.01, p < .001, r)^ = ticket, and gamble frames than under the gift certificate and .16). We found no interaction (F(l, 241) = .10, p = .75, Tip - 0). Participants' WTP was reduced when the low outcome was $25 compared with $50 ($18.38 vs. $34.24, Table 2 respectively; t(118) = 4.95,p < .001, r|p := .17; z = 4.69,/? < EXPERIMENT 3: COMPARISON OF RISK ASSOCIATIONS .001), as was WTA ($35.95 vs. $50.21, respectively; t(123) = BETWEEN THE SIX FRAMES 3.74,/? < .001, ri^ = .10; z = 3.53,/? < .001). Risk Association Discussion Frame N M(SD) Experiment 2 tested our hypothesis that buyers are more Gift certificate 26 2.44a (1.20) risk averse than sellers in their evaluation of a potential Voucher 26 2.92a (1.57) transaction. Replicating findings from Experiment 1, buyers Raffle 27 4.801= (1.20) Coin flip 26 5.021^(1.34) were willing to pay less when the risky prospect was framed Lottery ticket 26 5.94': (1.20) as a lottery than a gift certificate. Furthermore, WTP was Gamble 26 6.00= (.85) reduced when the low outcome of the risky prospect was a Notes: Means with different superscripts are significantly different at $25 rather than $50 gift certificate. However, the high out- p < .05 (Bonferroni-corrected post hoc tests). 730 JOURNAL OF MARKETING RESEARCH, DECEMBER 2013
voucher frames. We predicted that WTA would not differ buyer vs. seller) ANO VA on WTP/WTA revealed a main under the various frames. effect for frame (F(5,459) = 9.34,p < .001, T)^ = .09; H(5) = 35.27,/? < .001). The main effect of endowment status indi- Method cated that WTA (M = $45.52, SD = $22.62) was higher than Five hundred thirty-three participants (59.5% male, WTP (M = $31.47, SD = $20.31; F(l, 459) = 55.12,;j < 39.4% female, 1.1% unknown; M^gg = 27.77 years, SD = .001,ri^= .11; z = 6.28,/7< .001). More importantly, the 9.29 years) from MTurk participated in this experiment in interaction of frame and endowment status was significant exchange for $.20. In addition to manipulating endowment (F(5,459) = 2.64, p = .02, ^l = .03). Participants' WTP dif- status (buyers vs. sellers), the experiment used six frames: fered significantly across the six frames (F(5, 225) = 11.63, gift certificate, voucher, coin flip, raffle, lottery ticket, and p < .001, ri^ == .21; H(5) = 50.71 ,p < .001), but WTA did not gamble (i.e., a 2 x 6 between-subjects design). Appendix C (F(5, 234) = 1.95, /? = .09, ri^ = .04; H(5) = 5.69, p = .34; displays the instructions. As in the previous experiments, see Figure 3). Bonferroni-corrected post hoc comparisons we also included the instructional manipulation check and showed that WTP was lower under the coin flip, raffle, lot- comprehension question. tery, and gamble frames (which did not differ from one another) than the gift certificate and voucher frames (which Results did not differ from each other); see Table 3. Four hundred seventy-one participants (88.4%) correctly indicated that the $50 gift certificate was the lowest possi- Discussion ble outcome. This rate did not differ across the six framing The differential framing effect on WTP/WTA found in conditions (x^(5) = 6.0l,p = .26). In the subsequent analy- Experiment 2 seems to be robust across frames. In Experi- sis, we only considered these responses. ment 3, we found that frames that are more associated with A 6 (frame: gift certificate vs. voucher vs. coin flip vs. risk (lottery ticket, gamble, raffle, and coin flip) reduced raffle vs. lottery ticket vs. gamble) x 2 (endowment status: WTP compared with frames that are less associated with
Figure 3 EXPERIMENT 3: AVERAGE WTP/WTA AS A FUNCTION OF FRAMING AND ENDOWMENT STATUS
$60 -,
$50 -
$40 -
$30 -
$20 -
$10 Gift Certificate Voucher Coin Flip Raffle Lottery Gamble Frame
Notes: Error bars represent ±1 standard errors.
Table 3 EXPERIMENT 3: POST HOC COMPARISONS OF WTP AND WTA
WTP WTA Frame N M(SD) Mdn N M (SD) Mdn Gift certificate 37 $44.43a ($14.12) $50.00 42 $49.83" ($18.26) $50.00 Voucher 41 $43.39" ($13.61) $50.00 42 $50.02" ($18.88) $50.00 Raffle 33 $24.48''c ($22.08) $20.00 40 $48.18" ($23.32) $50.00 Coin flip 43 $27.59" ($20.96) $25.00 41 $45.05" ($24.74) $50.00 Lottery ticket 35 $20.20b ($20.51) $10.00 39 $40.82"':
Figure 4 EXPERIMENT 4: AVERAGE WTP AS A FUNCTION OF FRAMING AND CERTAINTY
$60-1
$50-
$40-
$30-
$20- Risky prospect • Low outcome for sure
$10 Gift Certificate Voucher Coin Flip Raffle Lottery Gamble Frame
Notes: Error bars represent ±1 standard errors. Framing Influences Willingness to Pay 733
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Q gs Z k. D UJ X o r- (N (N ON ^O ^ iri o lU ^ I g ^ — in in o l-Q hJ CQ Q O r 00 o I •o es < -^ (N — —> cr a. o o o o o o o o o o o o o r~- o in o in ir •^ •^ Tf CN — es UJ X Q •^' in —• -^ CE O •^ ro CN CS t^ U. û. O 03 I 88 8 UJ -H o — -^ ON m r^ o in ^ en cN in m ON in •Tf en LU tr UJ 0. X UJ O 734 JOURNAL OF MARKETING RESEARCH, DECEMBER 2013 Finally, Figure 4 and Table 4 also show that when the seems highly associated with risk, our framing effect cannot risky prospect is framed as low risk (gift certificate or explain the UE in this case. The UE seems to be multiply voucher) and its certain low outcome is framed as high risk determined; mismatching high- and a low-risk-associated (lottery, raffle, coin flip, and gamble), participants were will- frames is only one way to produce the UE. In the same vein, ing to pay more for the risky prospect than its certain worst it is an open question whether the framing effect—which we possible outcome, in line with dominance/monotonicity. have thus far only demonstrated for WTP—would also lead to the UE in choices or auctions (Gneezy, List, and Wu Discussion 2006; Sonsino 2008). We discuss this point in greater detail Experiment 4 tested the framing effect on WTP with the in the "General Discussion" section. six frames used in Experiment 3. We found that frames Willingness to pay decreases when a prospect is framed highly associated with risk (coin flip, raffle, lottery ticket, as risky. This reduction in attractiveness also seems to be at and gamble) reduced WTP compared with frames little odds with Goldsmith and Amir's (2010) findings that con- associated with risk (gift certificate and voucher). Impor- sumer promotions involving a risky prospect can be as tantly, these framing effects occurred independently of the attractive as the prospect's best certain outcome. In one objective level of uncertainty. study, participants were told that the purchase of a six-pack The framing effect on WTP may help explain why some of soft drinks would come with a free gift. Participants were researchers found the UE whereas others did not. As Table equally likely to buy the soft drinks whether they would 5 shows, in most studies that have found the UE, the risky receive either Godiva chocolates (best outcome) or Her- prospect's frame was highly associated with risk (e.g., lot- shey's Kisses (inferior outcome) with unknown probabili- tery, coin flip), and the lowest outcome's frame was little ties or receive Godiva chocolates for sure. The authors argue that consumers engage in "reflexive positivity," sim- associated with risk (e.g., gift, gift certificate, voucher). In ply assuming the best case scenario. When participants were contrast, most studies that did not replicate the UE framed encouraged to think about probabilities, however, the both the risky prospect and its certain lowest outcome in the reflexive positivity effect vanished. same way. An exception, however, is Study 2 in Newman and It is difficult to compare these results directly with ours Mochon (2012). In this study, participants were asked how and the UE, because the dependent variable was willingness much they would be willing to pay for an airline voucher for to buy, not WTP. A notable feature of Goldsmith and Amir's (2010) studies, however, is that they used an "add-on" a round-trip coach ticket to anywhere in the continental frame: the risky prospect of receiving either Hershey's United States. In the risky prospect condition, participants Kisses or Godiva chocolate was added on to a sure option, were told that the airline was running a promotion in which the six-pack of soft drinks. Newman and Mochon (2012) half the customers would be upgraded to flrst class. Consis- also used such an add-on frame in their aforementioned tent with the UE, WTP was lower in the promotion than in the study; participants were asked how much they would be certain condition (however, the effect was much smaller than willing to pay for an airline coach ticket (the sure option), in the authors' first study, which used the word "lottery"). with the risky prospect of receiving an upgrade to flrst class Because neither of the frames (voucher and promotion) added on to the sure option. To determine whether such an add-on frame (e.g., a $50 Table 5 gift certificate plus a 50% chance of the gift certificate OVERVIEW OF THE UE LITERATURE WITH RESPECT TO being upgraded to a $100 gift certificate) would interact FRAME (MIS)MATCHES AND UE REPLICATION with our framing effect, we ran an experiment in which we orthogonally manipulated add-on frame (add-on vs. origi- Framing of Outcomes nal) and the lottery/gift certificate frames. We replicated the Certain Low Risky UE lottery/gift certificate framing effect; the add-on framing Article Outcome Prospect Observed? had almost no effect on WTP. Web Appendix B describes Gneezy, List, and Gift certificate Lottery Yes the experiment and its results. Wu (2006) GENERAL DISCUSSION Markle, Rottenstreich, Gift certificate Coin flip Yes and Galak (2008) The present research advances our understanding of how Simonsohn (2009) Gift certificate Lottery Yes framing of a risky prospect influences consumers' WTP and Newman and Gift certificate Lottery Yes WTA. Buyers and sellers are sensitive to different aspects Mochon (2012) Airline voucher Promotion Yes of a potential exchange. To avoid bad deals, buyers are risk Goldsmith and Free gift Free gift No averse and focus on a prospect's negative aspects: its lowest Amir (2010) possible outcome and how much its frame is associated with Rydval et al. (2009) Gift certificate Gift certificate No risk. Sellers, in contrast, want to avoid selling a prospect Experiment 4 in the Gift certificate. Gift certificate. No below its market value and thus take the prospect's expected current research voucher voucher value as a starting point. Therefore, they are sensitive to a Gift certificate Lottery, raffle. Yes prospect's lowest and highest outcomes but do not take into coin flip, gamble account the risk associated with a prospect's frame. In sup- Lottery, raffle. Lottery, raffle. No port of our aversion to bad deals account, we found WTP to coin flip, gamble coin flip, gamble be higher when a risky prospect was framed as a gift certifi- Lottery, raffle, Gift certificate. No cate or a voucher (frames weakly associated with risk) than coin flip, gamble voucher when it was framed as a lottery ticket, a raffle, a coin flip. Framing Influences Willingness to Pay 735 or a gamble (frames strongly associated with risk). We ently. Because framing can influence WTP for both certain demonstrated this framing effect with real and hypothetical and uncertain prospects, framing a risky prospect as a lot- payoffs (Experiment 1-4) and showed that this effect is tery, coin flip, raffle, or gamble and framing its lowest out- independent of the objective level of uncertainty (Experi- come as a gift certificate will lead to the UE; that is, con- ment 4). Furthermore, we showed that WTP is sensitive to a sumers are willing to pay less for the risky prospect than for risky prospect's low outcome but not to its high outcome. In its lowest outcome (Experiment 4). Consistent with this contrast, we found that WTA is influenced by both a risky finding, most studies that have found the UE used frames prospect's low and high outcomes but not by the extent to highly associated with risk to describe the risky prospect which its frame was associated with risk (Experiment 2). and frames weakly associated with risk to describe the cer- tain prospect; most research that did not find the UE used Theoretical Implications the same frame to describe both the risky and certain Different frames elicit differences in WTP. The experi- prospects (see Table 4). ments presented in this article are the first to show that an Note that frame mismatching is common in other offer's label can dramatically influence how much people research fields as well. Most studies investigating decision are willing to pay for it. Frames such as lottery, coin flip, making under uncertainty use different frames to describe raffle, or gamble elicit much lower WTP than frames such risky and certain prospects. Risky prospects are typically as gift certificate and voucher, irrespective of the amount of described as lotteries or gambles, whereas certain outcomes uncertainty involved in the offer. The framing effect is or certainty equivalents are not framed in any way. Conse- robust and substantial, reducing WTP by approximately quently, decision anomalies and levels of risk aversion one-third on average. Moreover, in another experiment not inferred from choices or WTP may be caused not only by reported here, we manipulated the framing of the risky objective levels of uncertainty but also by the extent to prospect within subject (the order of the frames was coun- which a frame is associated with risk. terbalanced) and again observed a reduction in WTP. It should be noted, however, that we have demonstrated Framing influences WTP but not WTA. Our work shows the framing effect only on WTP, whereas others have found not only when framing matters but also when it does not the UE in WTP and choices (Gneezy, List, and Wu 2006). matter. Previous work on the endowment effect has shown Will framing lead to similar preference inconsistencies in that the market price and the valuation of an object can have choices as it does in WTP? Previous work has demonstrated different influences on WTP and WTA (Carmon and Ariely that under some conditions, consumers may choose a risky 2000; Isoni 2011; Johnson, Häubl, and Keinan 2007; prospect A over another risky prospect B but are willing to Weaver and Frederick 2012). The present research con- pay more for the latter than the former (Grether and Plott tributes to this line of study by showing that a prospect's 1979; Lichtenstein and Slovic 1971, 1973; Lindman 1971). label also influences WTP and WTA differently. We demon- Willingness to pay and choice are measures of preferences strate that when the objective uncertainty of the risky that are influenced differentially by situational/contextual prospect is held constant, the uncertainty associated with its factors. It is thus a question for further research to determine frame is considered a value-decreasing factor. Buyers tend whether framing influences choices in the same way as it to focus on the negative aspects of the prospect and thus are influences WTP, and—more generally—to what extent sensitive to framing. Sellers tend to be less risk averse and framing effects influence our understanding of risk aversion are thus insensitive to framing. and decision anomalies. Online marketers have long realized the effect of framing on consumers' willingness to participate in surveys. Web- APPENDIX A: INSTRUCTIONS USED IN EXPERIMENT 1 based consumer surveys are typically advertised by offering Gifl Certiflcate (WTP) consumers an opportunity to win an attractive item (e.g., "Answer a short survey and win an iPod"), not by offering We will randomly select five participants of this survey. to enter them in a lottery to win the item. Notably, this is not If you are selected, we will give you $20 (in form of a bonus the case for state-run lotteries (e.g., the Pennsylvania State payment for completing this HIT [Human Intelligence Lottery, the China Welfare Lottery, Spain's El Gordo). Task]) and an opportunity to purchase a gift card. These lotteries still use the label "lottery" or "lotto" in their We are interested in how much you are willing to pay for names and offerings (e.g., "lottery tickets," "lotto num- the gift card. The gift card will be either a $10 Best Buy gift bers"). Our research suggests that participation could poten- card or a $20 Best Buy gift card (both are equally likely). If tially be increased by refraining from using frames that are the price you are willing to pay is equal to or above our highly associated with risk such as "lottery." For example, reservation price for this gift card, you will buy the gift card "Powerball" is an American lottery game offered by the at the reservation price (in this case, we will send you the Multi-State Lottery Association that does not use the words outcome of the gift card, either a $10 Best Buy gift card or a "lottery" or "gamble" in any of its offerings. Needless to $20 Best Buy gift card). If the price you are willing to pay say, changing the name of a brand and its offerings may is below our reservation price, you will not buy the gift result in a loss of brand equity that may well offset the bene- card. ficial effect of omitting the word "lottery." Start-up lotteries, What is the highest price you are willing to pay for the however, are likely to benefit from not using the word "lot- gift card? tery," "gamble," or other frames highly associated with risk. Framing effects can lead to decision anomalies. As a con- Lottery (WTP) sequence of the framing effect, violations of dominance/ We will randomly select five participants of this survey. monotonicity can arise when prospects are framed differ- If you are selected, we will give you $20 (in form of a bonus 736 JOURNAL OF MARKETING RESEARCH, DECEMBER 2013 payment for completing this HIT) and an opportunity to Barnes & Noble bookstore or a $100 gift certificate for purchase a lottery ticket. Barnes & Noble bookstore (both are equally likely). What We are interested in how much you are willing to pay for is the lowest amount of money (in dollars) you would the lottery ticket. The lottery ticket will for sure give you accept to sell this voucher? either a $10 Best Buy gift card or a $20 Best Buy giff card (both are equally likely). If the price you are willing to pay Raffle (WTP) is equal to or above our reservation price for the lottery Suppose you have the option to buy a raffle ticket. The ticket, you will buy the lottery ticket at the reservation price raffle ticket will for sure give you either a $50 gift certifi- (in this case, we will send you the outcome of the lottery cate for Barnes & Noble bookstore or a $100 gift certificate ticket, either a $10 Best Buy gift card or a $20 Best Buy gift for Barnes & Noble bookstore (both are equally likely). card). If the price you are willing to pay is below our reser- What is the highest amount of money (in dollars) you would vation price, you will not buy the lottery ticket. pay to buy this raffle ticket? What is the highest price you are willing to pay for the lottery ticket? Raffle (WTA) APPENDIX B: INSTRUCTIONS USED IN EXPFRIMFNT 2 Suppose you were given a raffle ticket which is yours to keep. The raffle ticket will for sure give you either a $50 gift Gift Certificate (WTP) certificate for Barnes & Noble bookstore or a $100 gift cer- Suppose you have the option to buy an uncertain gift cer- tificate for Barnes & Noble bookstore (both are equally tiflcate. The giff certificate will be either a $50 [$50] [$25] likely). What is the lowest amount of money (in dollars) you gift certificate for Barnes & Noble bookstore or a $100 would accept to sell this raffle ticket? [$200] [$100] giñ certificate for Barnes & Noble bookstore (both are equally likely). What is the highest amount of Gamble (WTP) money (in dollars) you would pay to buy this gift certificate? Suppose you have the option to pay for playing a gamble. The gamble will for sure give you either a $50 gift certifi- Giß Certificate (WTA) cate for Barnes & Noble bookstore or a $100 gift certificate Suppose you were given a gift certificate which is yours to for Barnes & Noble bookstore (both are equally likely). keep. The gift certificate will be either a $50 [$50] [$25] gift What is the highest amount of money (in dollars) you would certificate for Barnes & Noble bookstore or a $100 [$200] pay to play this gamble? [$100] gift certificate for Barnes & Noble bookstore (both are equally likely). What is the lowest amount of money (in Gamble (WTA) dollars) you would accept to sell this gift certificate? Suppose you were given a chance to play a gamble. The Lottery (WTP) gamble will for sure give you either a $50 gift certiflcate for Barnes & Noble bookstore or a $100 gift certificate for Suppose you have the option to buy a lottery ticket. The Barnes & Noble bookstore (both are equally likely). What lottery ticket will for sure give you either a $50 [$50] [$25] is the lowest amount of money (in dollars) you would gift certificate for Barnes & Noble bookstore or a $100 accept to give up the chance to play this gamble? [$200] [$100] gift certificate for Barnes & Noble bookstore (both are equally likely). What is the highest amount of Coin Flip (WTP) money (in dollars) you would pay to buy this lottery ticket? Suppose you have the option to pay for participating in a Lottery (WTA) coin flip. If heads comes up, you will get a $50 gift certifi- cate for Barnes & Noble bookstore. If tails comes up, you Suppose you were given a lottery ticket which is yours to will get a $100 gift certificate for Barnes & Noble book- keep. The lottery ticket will for sure give you either a $50 [$50] [$25] gift certificate for Barnes & Noble bookstore or store. What is the highest amount of money (in dollars) you a $100 [$200] [$100] gift certificate for Barnes & Noble would pay to participate in this coin flip? bookstore (both are equally likely). What is the lowest Coin Flip (WTA) amount of money (in dollars) you would accept to sell this lottery ticket? Suppose you were given a chance to participate in a coin flip. If heads comes up, you will get a $50 gift certificate for APPFNDIX C: INSTRUCTIONS USED IN EXPERIMENTS Barnes & Noble bookstore. If tails comes up, you will get a Voucher (WTP) $100 gift certificate for Barnes & Noble bookstore. What is the lowest amount of money (in dollars) you would accept Suppose you have the option to buy a voucher. This to give up the chance to participate in this coin flip? voucher will be either a $50 gift certificate for Barnes & Noble bookstore or a $100 gift certificate for Barnes & APPENDIX D: INSTRUCTIONS USED IN EXPERIMENT 4 Noble bookstore (both are equally likely). What is the high- Uncertain Gifi Certificate est amount of money (in dollars) you would pay to buy this voucher? We are interested in how much you would be willing to pay for a gift certiflcate. The gift certificate will be either a Voucher (WTA) $50 gift certificate for Barnes & Noble bookstore or a $100 Suppose you were given a voucher which is yours to gift certificate for Barnes & Noble bookstore (both are keep. This voucher will be either a $50 gift certificate for equally likely). Framing Influences Willingness to Pay 737 Uncertain Voucher Certain Gamble We are interested in how much you would be willing to We are interested in how much you would be willing to pay for a voucher. 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