The effect of olfactory sensory cues on economic decision making

Kechagia, Varvara and Drichoutis, Andreas C. (2016): The effect of olfactory sensory cues on economic decision making.

Abstract

Several studies show that sensory cues influence consumer decision making processes. While scent is a key component of a market's physical environment, it has received far less attention in the academic literature as compared, for example, with visual cues. In addition, most of the studies that examine the effect of ambient scents fail on one or both of these criteria: to properly control the influence of nuisance factors and/or to elicit preferences under real monetary incentives. We collected data from a laboratory experiment where we varied on a between subjects basis the dispersion of a citrus fragrance. We then elicited subjects' willingness to pay for two unbranded products - a mug and a chocolate - by having subjects participate in a 2nd price Vickrey auction. We also elicited subjects' risk preferences using lottery choice tasks. Our results show a statistically and economically significant effect on subjects' willingness to pay: valuations increased between 37% - 43% for subjects who were exposed to a citrus scent as compared to the control group. We do not find a statistically significant effect of the citrus scent on subjects' risk aversion.

• Item Type: MPRA Paper
• Language: English
• Keywords: scent cues; fragrance; olfactory; willingness to pay; risk preferences; risk aversion; laboratory experiment
• Subjects: C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D44 - Auctions; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D87 - Neuroeconomics

References

Andersen, S., G. W. Harrison, M. Lau, and E. E. Rutstrom (2015). Multiattribute utility theory, intertemporal utility and correlation aversion. Center for the Economic Analysis of Risk, Working Paper 2011-03.

Andersen, S., G. W. Harrison, M. I. Lau, and E. E. Rutstrom (2014). Discounting behavior: A reconsideration. European Economic Review 71, 15-33.

Bargh, J. A. (1992). Does subliminality matter to social psychology? awareness of the stimulus versus awareness of its influence. In R. F. Bornstein and T. S. Pittman (Eds.), Perception without awareness: Cognitive, clinical, and social perspectives, pp. 236-255.

Baron, R. A. (1981). Olfaction and human social behavior: Effects of a pleasant scent on attraction and social perception. Personality and Social Psychology Bulletin 7 (4), 611-616.

Baron, R. A. (1983). "Sweet smell of success"? The impact of pleasant artificial scents on evaluations of job applicants. Journal of Applied Psychology 68 (4), 709-713.

Bone, P. F. and S. Jantrania (1992). Olfaction as a cue for product quality. Marketing Letters 3 (3), 289-296.

Bosmans, A. (2006). Scents and sensibility: When do (in)congruent ambient scents influence product evaluations? Journal of Marketing 70 (3), 32-43.

Bradford, K. D. and D. M. Desrochers (2009). The use of scents to influence consumers: The sense of using scents to make cents. Journal of Business Ethics 90 (2), 141-153.

Busemeyer, J. R. and J. T. Townsend (1992). Fundamental derivations from decision field theory. Mathematical Social Sciences 23 (3), 255-282.

Busemeyer, J. R. and J. T. Townsend (1993). Decision field theory: A dynamic-cognitive approach to decision making in an uncertain environment. Psychological Review 100 (3), 432-459.

Cain, W. (1979). To know with the nose: keys to odor identification. Science 203 (4379), 467-470.

Chebat, J.-C. and R. Michon (2003). Impact of ambient odors on mall shoppers' emotions, cognition, and spending: A test of competitive causal theories. Journal of Business Research 56 (7), 529-539.

Chebat, J.-C., M. Morrin, and D.-R. Chebat (2009). Does age attenuate the impact of pleasant ambient scent on consumer response? Environment and Behavior 41 (2), 258- 267.

Clarke, K. A. (2003). Nonparametric model discrimination in international relations. Journal of Conflict Resolution 47 (1), 72-93.

Corbett, J. (1994). Extended Play: Sounding Off from John Cage to Dr. Funkenstein. Durham, London: Duke University Press.

Corgnet, B., R. Hernn-Gonzlez, P. Kujal, and D. Porter (2014). The effect of earned versus house money on price bubble formation in experimental asset markets. Review of Finance 19 (4), 1455-1488.

Corrigan, J. R., A. C. Drichoutis, J. L. Lusk, J. R.M. Nayga, and M. C. Rousu (2012). Repeated rounds with price feedback in experimental auction valuation: An adversarial collaboration. American Journal of Agricultural Economics 94 (1), 97-115.

Cox, J., V. Sadiraj, and U. Schmidt (2014). Paradoxes and mechanisms for choice under risk. Experimental Economics, 1-36.

de Wijk, R. A. and S. M. Zijlstra (2012). Differential effects of exposure to ambient vanilla and citrus aromas on mood, arousal and food choice. Flavour 1 (1), 1-7.

Dematte, M. L., R. Osterbauer, and C. Spence (2007). Olfactory cues modulate facial attractiveness. Chemical Senses 32 (6), 603-610.

Douce, L. and W. Janssens (2013). The presence of a pleasant ambient scent in a fashion store: The moderating role of shopping motivation and affect intensity. Environment and Behavior 45 (2), 215-238.

Drichoutis, A. C. and J. L. Lusk (2014). Judging statistical models of individual decision making under risk using in- and out-of-sample criteria. PLoS ONE 9 (7), e102269.

Drichoutis, A. C. and J. L. Lusk (2016). What can multiple price lists really tell us about risk preferences? Journal of Risk and Uncertainty 53 (2).

Ehrlichman, H. and J. N. Halpern (1988). Affect and memory: Effects of pleasant and unpleasant odors on retrieval of happy and unhappy memories. Journal of Personality and Social Psychology 55 (5), 769-779.

Fiore, A. M., X. Yah, and E. Yoh (2000). Effects of a product display and environmental fragrancing on approach responses and pleasurable experiences. Psychology and Marketing 17 (1), 27-54.

Gagarina, A. and I. Pikturnien_e (2015). The effect of ambient scent type and intensiveness on decision making heuristics. Procedia - Social and Behavioral Sciences 213, 605-609.

Goldkuhl, L. and M. Styven (2007). Sensing the scent of service success. European Journal of Marketing 41 (11/12), 1297-1305.

Goldstein, W. M. and H. J. Einhorn (1987). Expression theory and the preference reversal phenomena. Psychological Review 94 (2), 236-254.

Gonzalez, R. and G.Wu (1999). On the shape of the probability weighting function. Cognitive Psychology 38 (1), 129-166.

Grabenhorst, F., E. T. Rolls, C. Margot, M. A. A. P. da Silva, and M. I. Velazco (2007). How pleasant and unpleasant stimuli combine in different brain regions: Odor mixtures. The Journal of Neuroscience 27 (49), 13532-13540.

Gueguen, N. and C. Petr (2006). Odors and consumer behavior in a restaurant. International Journal of Hospitality Management 25 (2), 335-339.

Hancock, G. D. (2009). The efficacy of fragrance use for enhancing the slot machine gaming experience of casino patrons. Doctoral dissertation, William F. Harrah College of Hotel Administration, University of Nevada, Las Vegas.

Harrison, G. W., A. Hofmeyr, D. Ross, and J. T. Swarthout (2015). Risk preferences, time preferences and smoking behaviour. Center for the Economic Analysis of Risk, Working Paper 2015-11.

Harrison, G. W. and J. M. Ng (2016). Evaluating the expected welfare gain from insurance. Journal of Risk and Insurance 83 (1), 91-120.

Harrison, G. W. and E. E. Rutstrom (2008). Risk aversion in the laboratory. In J. C. Cox and G. W. Harrison (Eds.), Research in Experimental Economics Vol 12: Risk Aversion in Experiments, Volume 12, pp. 41-196. Bingley, UK: Emerald Group Publishing Limited.

Harrison, G. W. and J. T. Swarthout (2014). Experimental payment protocols and the bipolar behaviorist. Theory and Decision 77 (3), 423-438.

Harrison, G. W. and J. T. Swarthout (2016). Cumulative prospect theory in the laboratory: A reconsideration. Center for the Economic Analysis of Risk, Working Paper 2016-02.

Herz, R. S. and J. von Clef (2001). The influence of verbal labeling on the perception of odors: Evidence for olfactory illusions? Perception 30 (3), 381-391.

Hey, J. (2005). Why we should not be silent about noise. Experimental Economics 8 (4), 325-345.

Hey, J. (2014). My experimental meanderings. Theory and Decision 77 (3), 291-295.

Hey, J. and W. Zhou (2014). Do past decisions in uence future decisions? Applied Economics Letters 21 (3), 152-157.

Hey, J. D. and J. Lee (2005a). Do subjects remember the past? Applied Economics 37 (1), 9-18.

Hey, J. D. and J. Lee (2005b). Do subjects separate (or are they sophisticated)? Experimental Economics 8 (3), 233-265.

Hey, J. D., G. Lotito, and A. Maffioletti (2010). The descriptive and predictive adequacy of theories of decision making under uncertainty/ambiguity. Journal of Risk and Uncertainty 41 (2), 81-111.

Hirsch, A. R. (1990). Preliminary results of olfaction nike study. Smell and Taste Treatment and Research Foundation Ltd. Chicago.

Hirsch, A. R. (1995). Effects of ambient odors on slot-machine usage in a las vegas casino. Psychology and Marketing 12 (7), 585-594.

Holt, C. A. (1986). Preference reversals and the independence axiom. The American Economic Review 76 (3), 508-515.

Holt, C. A. and S. K. Laury (2002). Risk aversion and incentive effects. The American Economic Review 92 (5), 1644-1655.

Homburg, C., M. Imschlo, and C. Kuhnl (2012). Of dollars and senses - Does multisensory marketing pay off? Research Insights Paper RI009 of the Institute for Market-Oriented Management, University of Mannheim.

Hoover, K. C. (2010). Smell with inspiration: The evolutionary significance of olfaction. American Journal of Physical Anthropology 143 (S51), 63-74.

Jacquemet, N., R.-V. Joule, S. Luchini, and J. F. Shogren (2009). Earned wealth, engaged bidders? Evidence from a second-price auction. Economics Letters 105 (1), 36-38.

Karmarkar, U. S. (1978). Subjectively weighted utility: A descriptive extension of the expected utility model. Organizational Behavior and Human Performance 21 (1), 61-72.

Karmarkar, U. S. (1979). Subjectively weighted utility and the allais paradox. Organizational Behavior and Human Performance 24 (1), 67-72.

Kruskal, W. H. and W. A. Wallis (1952). Use of ranks in one-criterion variance analysis. Journal of the American Statistical Association 47 (260), 583-621.

Lattimore, P. K., J. R. Baker, and A. D. Witte (1992). The influence of probability on risky choice. Journal of Economic Behavior & Organization 17 (3), 377-400.

Lawless, H. T., C. J. C. Thomas, and M. Johnston (1995). Variation in odor thresholds for l-carvone and cineole and correlations with suprathreshold intensity ratings. Chemical Senses 20 (1), 9-17.

Li, W., I. Moallem, K. A. Paller, and J. A. Gottfried (2007). Subliminal smells can guide social preferences. Psychological Science 18 (12), 1044-1049.

Lindstrom, M. (2005). Brand sense: Build powerful brands through touch, taste, smell, sight, and sound. New York: Free Press.

Liu, Y., F. Tovia, K. Balasubramian, J. D. Pierce, and J. Dugan (2008). Scent infused textiles to enhance consumer experiences. Journal of Industrial Textiles 37 (3), 263-274.

Mattila, A. S. and J. Wirtz (2001). Congruency of scent and music as a driver of in-store evaluations and behavior. Journal of Retailing 77 (2), 273-289.

Melcher, J. M. and J. W. Schooler (1996). The misremembrance of wines past: Verbal and perceptual expertise differentially mediate verbal overshadowing of taste memory. Journal of Memory and Language 35 (2), 231-245.

Michon, R., J. C. Chebat, and R. Michon (2006). The interaction effect of music and odour on shopper spending. Doctoral dissertation, School of Retail Management, Ryerson University, Toronto, Canada.

Michon, R., J.-C. Chebat, and L. W. Turley (2005). Mall atmospherics: the interaction effects of the mall environment on shopping behavior. Journal of Business Research 58 (5), 576-583.

Mitchell, D. J., B. E. Kahn, and S. C. Knasko (1995). There's something in the air: Effects of congruent or incongruent ambient odor on consumer decision making. Journal of Consumer Research 22 (2), 229-238.

Mood, A. M. (1954). On the asymptotic efficiency of certain nonparametric two-sample tests. The Annals of Mathematical Statistics 25 (3), 514-522.

Morrin, M. and S. Ratneshwar (2000). The impact of ambient scent on evaluation, attention, and memory for familiar and unfamiliar brands. Journal of Business Research 49 (2), 157-165.

Morrison, M., S. Gan, C. Dubelaar, and H. Oppewal (2011). In-store music and aroma influences on shopper behavior and satisfaction. Journal of Business Research 64(6), 558-564.

Norwood, B. F., M. C. Roberts, and J. L. Lusk (2004). Ranking crop yield models using out-of-sample likelihood functions. American Journal of Agricultural Economics 86 (4), 1032-1043.

Olofsson, J. K., N. E. Bowman, K. Khatibi, and J. A. Gottfried (2012). A time-based account of the perception of odor objects and valences. Psychological Science 23 (10), 1224-1232.

Parsons, A. G. (2009). Use of scent in a naturally odourless store. International Journal of Retail & Distribution Management 37 (5), 440-452.

Prelec, D. (1998). The probability weighting function. Econometrica 66 (3), 497-528. Quiggin, J. (1982). A theory of anticipated utility. Journal of Economic Behavior & Organization 3 (4), 323-343.

Shogren, J. F., M. Margolis, C. Koo, and J. A. List (2001). A random nth-price auction. Journal of Economic Behavior and Organization 46 (4), 409-421.

Smeets, M. A. and G. B. Dijksterhuis (2014). Smelly primes - when olfactory primes do or do not work. Frontiers in Psychology 5.

Sorokowska, A., P. Sorokowski, and J. Havlicek (2016). Body odor based personality judgments: The effect of fragranced cosmetics. Frontiers in Psychology 7.

Spangenberg, E. R., A. E. Crowley, and P. W. Henderson (1996). Improving the store environment: Do olfactory cues affect evaluations and behaviors? Journal of Marketing 60 (2), 67-80.

Spangenberg, E. R., D. E. Sprott, B. Grohmann, and D. L. Tracy (2006). Gender-congruent ambient scent influences on approach and avoidance behaviors in a retail store. Journal of Business Research 59 (12), 1281-1287.

StataCorp (2013). Stata user's guide release 13. College Station, Texas, USA: Stata Press.

Stern, K. and M. K. McClintock (1998). Regulation of ovulation by human pheromones. Nature 392 (6672), 177-179. 10.1038/32408.

Sutani, K., S. Iwaki, M. Yamaguchi, K. Uchida, and M. Tonoike (2007). Neuromagnetic brain responses evoked by pleasant and unpleasant olfactory stimuli. International Congress Series 1300, 391-394.

Tversky, A. and C. R. Fox (1995). Weighing risk and uncertainty. Psychological Review 102 (2), 269-283.

Tversky, A. and D. Kahneman (1992). Advances in prospect theory: Cumulative representation of uncertainty. Journal of Risk and Uncertainty 5 (4), 297-323.

Vickrey, W. (1961). Counterspeculation, auctions, and competitive sealed tenders. Journal of Finance 16 (1), 8-37.

Vuong, Q. H. (1989). Likelihood ratio tests for model selection and non-nested hypotheses. Econometrica 57 (2), 307-333.

Wada, Y., Y. Inada, J. Yang, S. Kunieda, T. Masuda, A. Kimura, S. Kanazawa, and M. K. Yamaguchi (2012). Infant visual preference for fruit enhanced by congruent in-season odor. Appetite 58 (3), 1070-1075.

Wakker, P. P. (2007). Message to referees who want to embark on yet another discussion of the random-lottery incentive system for individual choice. Available at http://people.few.eur.nl/wakker/miscella/debates/randomlinc.htm

Wilby, F. V. (1969). Variation in recognition odor threshold of a panel. Journal of the Air Pollution Control Association 19 (2), 96-100.

Wilcox, N. (2008). Stochastic models for binary discrete choice under risk: A critical primer and econometric comparison. In J. C. Cox and G. W. Harrison (Eds.), Research in Experimental Economics Vol 12: Risk Aversion in Experiments, pp. 197-292. Bingley, UK: Emerald Group Publishing Limited.

Wilcox, N. (2015). Error and generalization in discrete choice under risk. Economic Science Institute (Chapman University) Working paper.

Wilcox, N. T. (2011). 'Stochastically more risk averse:' A contextual theory of stochastic discrete choice under risk. Journal of Econometrics 162 (1), 89-104.