Another version will replace the current draftchoice experiment, milk, attribute information, Agribusiness, Consumer/Household Economics, Food Consumption/Nutrition/Food Safety, Marketing,

Gao, Zhifeng

Yu, Xiaohua

English

Research Papers in Economics

A Two-Stage Choice Experiment Approach to Elicit Consumer Preferences 
 
 
Zhifeng Gao
1and Xiaohua Yu
2 
 
 
Authors are: 
1: Assistant Research Scientist 
Food and Resource Economics Department 
University of Florida 
Email: zfgao@ufl.edu 
 
 
 
2: Junior Professor 
Courant Research Centre -PEG 
University of Goettingen 
Email: xyu@uni-goettingen.de 
 
 
 
Selected Paper prepared for presentation at the Agricultural & Applied Economics Association Annual 
Meeting, Pittsburgher, Pennsylvania, July 24-26, 2011 
 
 
 
 
 
 
 
 
Copyright 2010 by [Zhifeng Gao and Xiaohua Yu]. All rights reserved. Readers may make verbatim 
copies of this document for non-commercial purposes by any means, provided that this copyright notice 
appears on all such copies. 
 Introduction 
Choice experiments (CE) have been widely used in estimating consumer preferences and 
willingness to pay (WTP) for product attributes because its advantage in identifying the trade-off 
among multiple attributes. Researchers in both marketing and economics have work hard to 
improve the method to obtain a better understanding of consumer preferences of products. For 
instance, the impact of cheap talk has been proved to improve the estimates of consumer 
willingness to pay (WTP). Non hypothetical CE which involves real cash exchange has been 
recommended because it is more incentive compatible. Large amount of choice sets in CE is not 
recommended because consumer limited ability to process a lot of information in short time. In 
addition, various econometric models have been developed to more suitably fit the assumption 
on consumer choice behavior. Most recently, the impact of impact of the information loads, such 
as the dimensionality of CE and the number of attributes in CE on the estimates of consumer 
WTP have been studies more extensively. Results from those studies suggest that the impact of 
attribute information may result from consumer limited ability to process large amount of 
attribute information. Some researchers also demonstrate that consumer only use a limited 
amount of attributes that they can recall to make choice decision. Therefore, it is reasonable to 
assume that consumers have limited cognitive ability to process large amount of attribute 
information, and they only make the choice decision using a subset of selective attributes. Base 
on this assumption, the CE that can incorporate the attribute selection in consumer choice 
decision making will be more appropriate and more efficient. This paper presents a  “two-stage” 
choice experiment approach to estimate consumer stated preferences which allows a respondent 
to select most important attributes for herself/himself from a set of attributes before choice 
decision-making. In this approach, the CE presented to a respondent varies based on her/his 
selection of attributes that determine their choice decision. Using this approach, consumer groups 
that have homogeneous preference for a set of attributes can also be easily identified.           
Methodology    
Assuming that when making choice decision, consumers can only process limited information on 
the products, then consumers will select subsets of a full set of attribute information, and the 
purchase behavior is determined by the selected attributes. Consumer choice decision can be 
separated into two stages.  
In the first stage, a consumer will select ai, where    is a subset of product attributes that a 
consumer chooses to make her/his decision, and ai∈A, where A is a set of all product attributes 
presented to the consumer.  The selection of the subset of attributes may depend on a consumer's 
demographics, personal believe, experience, lifestyle etc.  
In the second stage, a consumer will make choice decision based on the selected attributes, such 
that P(Zi=j)=P(Uij=max(Uik,k=1...m)|ai),  where Uij is a consumer's utility depending on the 
consumer selected attributes, and k represents the alternatives that the consumer make choice from. Following the random utility theory which assumes that Uij=Vij+eij, and with the 
assumption that eij is identically independently distributed with Gumbel distribution, the 
parameters in consumer utility function can be estimated using conditional logit model or more 
flexible mixed logit model that assumes heterogeneous preference among consumers. In fact the 
second stage of the approach is a traditional choice experiment, and any econometric method 
suitable for CE data could be used. The key difference between the presented approach and the 
traditional CE is that the utility function of a consumer depend on her/his selection of the 
attributes. If we present 10 product attributes to consumers, and ask them to selected, for instance, 
seven most important attributes that impact their choice decision, theoretically, we will have 120 
possible CE at the second stage. However, in most cases we won't do this because most times we 
have a well defined research question and are particularly interested in several product attributes, 
and thus only leave a few attributes for consumers to select from. In addition, even we ask 
consumers make the selection of seven from 10 attributes at the first stage, the number of CE at 
the second stage may still be much smaller than 120 because some consumers may choose the 
same combination of seven attributes. 
The Data 
From November to December, 2010, a survey containing a dynamic choice experiment was 
delivered to 7,500 undergraduate students living in university housing of University of Florida, 
Gainesville, FL. About 970 students took the survey and 634 students finished the survey.  The 
product used in the choice experiment is milk, and we were particularly interested in consumer 
preferences for raw milk (raw vs. pasteurized). Based on previous studies, the attributes such as 
price, production method (organic vs. conventional) and location (milk producing state) are 
predetermined attributes in the CE. In the first stage, consumers were asked to choose two most 
important attributes among the following five attributes: (1) whether milk is from grass fed cows, 
(2) whether milk is from small farms, (3) whether milk cows are treated with higher animal 
welfare standard, (4) whether milk is from a family farm and (5) whether milk production meets 
higher environment protection standard. There were 10 possible attribute combinations. In the 
second stage, the two most important attributes selected by a respondent and the 4 predetermined 
attributes were used to design the CE, and the respondent was asked to answer the CE questions. 
All the 10 CE used the same design -- maximum D-efficiency design with six attributes (4 
predetermined and 2 selected attributes by consumers) to generate the product profiles and then 
cyclical design was used to generate the CE.   
Preliminary Results 
Based on the 970 responses of the students who answered the question asking them to select two 
most important milk attributes from five attributes, higher animal welfare standard is the most 
important attribute, followed by higher environmental standard and from grass fed cows. Family 
farm and small farm are the least important attributes. More than 30% of respondents select both 
higher animal welfare and higher environmental standard as two most important factors, about 13% selected both higher animal welfare and from grass fed cows and about 11% selected both 
higher environmental standard and from grass fed cows. These results demonstrate the 
advantage of the two-stage CE as the tradition CE approach only present the same CE to all 
respondents in which some attributes might be not important at all for some of the respondents in 
their choice decision.  
 
Full paper with results will be updated soon.  

A Two-Stage Choice Experiment Approach to Elicit Consumer Preferences

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