Joost M. E. Pennings

A Note on Modeling Consumer Reactions to a Crisis: The Case of the Mad Cow Disease

What drives the behavior of consumers when faced with a product-related crisis, such as that involving food contamination or life-threatening design flaws? For both consumers and companies, these crises have become of increasing importance because of the globalization of markets and an increased coverage by the media. Marketers need to understand why and how consumers react to a crisis. We show that by decoupling risk response behavior of consumers into the separate components of risk perception and risk attitude, a more robust conceptualization and prediction of consumers’ reactions is possible. Such a framework helps provide answers on how marketers can deal with such types of crises. The merits of this conceptualization are illustrated in two field studies that examine the reactions of German, Dutch, and American consumers to the BSE (mad cow disease) crisis. D 2002 Elsevier Science B.V. All rights reserved.

Surveying Farmers: A Case Study

A large percentage of farmers do not respond to mail surveys. To gain insight into why farmers do not respond and how to improve response rates, a three-step research design was developed. First, an initial survey, based on in-person interviews with 15 farmers, was sent to 100 farmers. Second, farmers who did not respond to this mail survey were contacted by phone to investigate the reasons for not responding. Third, based on the information from these nonrespondents, the survey instrument was revised and sent to 3,990 U.S. farmers. Our studies show that the period in which the survey is sent is a crucial factor in the willingness to participate, along with the form and amount of compensation, the sender of the questionnaire, and the perceived length of the questionnaire.

Channel Contract Behavior: The Role of Risk Attitudes, Risk Perceptions, and Channel Members' Market Structures

Risk and uncertainty influence many channeldecisions, especially those in turbulent channelswith uncertain pay-offs. Managing or reducingsuch risk involves managing the vulnerabilityandvolatilityofcashflowstohelpcreateshare-holder value (Srivastava, Shervani, and Fahey1998). Such an effort requires the integration offinance and marketing (Rappaport 1986). A keyquestion is how risk reduction behaviors are in-fluencedbyriskperceptions,riskattitudes,andthe market structure across the buying side andthe selling side of the channel. Understandingand anticipating the resulting changes is espe-cially important in commodity and in technol-ogy industries where risk continually fluctuates(Anderson 1982). It is also critical in industrieswhere unpredicted events—such as productrecalls or food safety concerns—dramaticallyinfluence channel supply and demand of prod-ucts with prescribed characteristics (Pennings,Wansink, and Meulenberg 2002).Researchonriskmanagementinchannelsitua-tions often assumes risk aversion and focuses oneither risk perceptions or on risk attitudes. Sel-dom, however, have these two constructs—risk

Hedging efficiency: A futures exchange management approach

INTRODUCTIONIn studies of futures markets muchattentionhasbeenpaidtothehedgingeffectiveness of futures contracts because it is an important determinantin explaining the success of futures contracts [Johnston, Tashjian, andMcConnell (1989)]. The authors who have proposed measures of thiseffectiveness include Chang and Fang (1990), Ederington(1979),Gjerde(1987), Hsin, Kuo, and Lee (1994), Lasser (1987), and Nelson and Col-lins (1985). These measures all try to determine to what extent hedgersare able to reduce cash price risk by using futures contracts. In thesestudies hedging effectiveness refers to returns on portfolios. A particularfutures contract can have different values with respect to hedging effec-tiveness, depending on which measure is used and on the hedger utilityfunction. Futures contracts, themselves, introduce risks for hedgers.Therefore, the extent to which a futures contract offers a reduction inoverall risk is an important criterion for the management of the futures

Consumer Food Safety Risk Perceptions and Attitudes: Impacts on Beef Consumption across Countries

Abstract Beef food safety events have contributed to considerable market volatility, produced varied consumer reactions, created policy debates, sparked heated trade disputes, and generally contributed to beef industry frustrations. Utilizing data from a total of 4,005 consumers in the United States, Canada, Mexico and Japan in a Double-Hurdle modeling framework, we examine whether consumers altered their beef consumption behavior because of their risk aversion and risk perceptions stemming from information about beef food safety in recent years. Results reveal stark differences in risk perceptions and risk aversion regarding beef food safety across consumers in the four countries and that these differences are revealed through different beef consumption behavior. An improved understanding of food safety perceptions and attitudes will enable policy makers and agricultural industries to better anticipate consumers changing consumption behavior, if a food safety event occurs. Food safety management strategies vary across countries because of identified differences in food safety risk attitudes and risk perceptions.

Attitude-based models for binary choices: A test for choices involving an innovation

Abstract Several studies either implicitly or explicitly converted the well-known theory of reasoned action into a theory for choice. In this paper we elaborate upon such an attitude-based choice theory by proposing different model variants for binary choices. The models vary in two respects: (1) the level at which alternatives are compared (level of comparison), and (2) the way the comparison takes place at each of these levels in reaching a choice (comparison mechanism). Based on these dimensions 45 models were formulated that were examined empirically by logistic regression on choice probabilities. The data set consisted of measurements on 467 entrepreneurs for different financial services, one of which was an innovation. Of the different comparison mechanisms, subtraction, without explicitly incorporating the similarity of the choice alternatives, turned out to be the most adequate. For these models, equal weighting of the attitudinal components could not be rejected, which made it impossible to test at which level the alternatives were compared. Structural equation modeling of the same data shows that the equality of the weights for the attitudinal components can be explained by the affective component of attitude being a major predictor of choice.

The motivation for hedging revisited

This article develops an alternative view on the motivation to hedge. A conceptual model shows how hedging facilitates contract relationships between firms and can solve conflicts between firms. In this model, the contract preferences, level of power, and conflicts in contractual relationships of firms are driving the usage of futures contracts. The model shows how using futures markets can provide a jointly preferred contracting arrangement, enhancing relationships between firms. The robust nature of the conceptual model is empirically examined through a computer-guided study of various firms. 2000 John Wiley & Sons, Inc. Jrl Fut Mark 20:865‐885, 2000.

The Hedging Performance in New Agricultural Futures Markets: A Note

Agribusiness companies and farmers must cope with the risk of price changes when buying or selling agricultural commodities. Hedging price risk with agricultural commodity futures offers a way of minimizing this risk. Information is needed on the hedging effectiveness of these futures. Because many new agricultural futures markets, especially those in Europe, are thin markets, hedgers face liquidity risks which have to be taken into account when evaluating hedging effectiveness.

Trying Harder and Doing Worse: How Grocery Shoppers Track In-Store Spending

Although almost one in three U.S. households shops on a budget, it remains unclear whether and how shoppers track their in-store spending to stay within those budgets. A field study and two laboratory studies offer four key generalizations about budget shoppers in grocery stores: (1) They predominantly use mental computation strategies to track their in-store spending, (2) they adapt their mental computation strategy to the dominant range of price endings of items in their shopping baskets, (3) those who try to calculate the exact total price of their basket are less accurate than those who estimate the approximate price, and (4) motivated shoppers are less accurate than less motivated shoppers (because they tend to calculate rather than estimate the total basket price). A second field study demonstrates that shoppers who underestimate the total price of their basket are more likely to overspend, leading to negative store satisfaction.

Behavioral Portfolio Analysis of Individual Investors

Existing studies on individual investors’ decision-making often rely on observable socio-demographic variables to proxy for underlying psychological processes that drive investment choices. Doing so implicitly ignores the latent heterogeneity amongst investors in terms of their preferences and beliefs that form the underlying drivers of their behavior. To gain a better understanding of the relations among individual investors’ decision-making, the processes leading to these decisions, and investment performance, this paper analyzes how systematic differences in investors’ investment objectives and strategies impact the portfolios they select and the returns they earn. Based on recent findings from behavioral finance we develop hypotheses which are tested using a combination of transaction and survey data involving a large sample of online brokerage clients. In line with our expectations, we find that investors driven by objectives related to speculation have higher aspirations and turnover, take more risk, judge themselves to be more advanced, and underperform relative to investors driven by the need to build a financial buffer or save for retirement. Somewhat to our surprise, we find that investors who rely on fundamental analysis have higher aspirations and turnover, take more risks, are more overconfident, and outperform investors who rely on technical analysis. Our findings provide support for the behavioral approach to portfolio theory and shed new light on the traditional approach to portfolio theory.