An investigation of the rationality of consumer valuations of multiple health risks

After developing a conceptual analysis of consumer valuation of multiple risks, we explore both economic and cognitive hypotheses regarding individual risk-taking. Using a sample of over 1,500 consumers, our study ascertains risk-dollar tradeoffs for the risks associated with using an insecticide and a toilet howl cleaner. We observe the expected positive valuation of risk reductions and find empirical support for a diminishing in the valuation of risk reduction as the extent of the risk reduction increases. We also find evidence of certainty premiums for the total elimination of one risk, but no strong evidence of additional certainty premiums for the elimination of multiple risks. Strong reference risk effects are evident, as increases in risk were valued much more greatly than were decreases.

Duke Scholars

Author Joel C. Huber Fuqua School of Business