Information and Risk Perception: A Dynamic Adjustment Process

It is common in catastrophic food-contamination events that consumers fail to adjust instantaneously to a normal consumption level. One explanation is that consumers only gradually accept new positive information as being trustworthy. The gradual establishment of the trustworthiness of the released information depends on both positive and negative media coverage over time. We examine the individual "trust" effects by extending the prospective reference theory (Viscusi, 1989) to include a dynamic adjustment process of risk perception. Conditions that allow aggregation of changes in risk perceptions across individuals are described. The proposed model describes a general updating process of risk perceptions to media coverage and can be applied to explain the temporal impact of media coverage on consumption of a broad range of goods (food or nonfood). A case study of milk contamination is conducted to demonstrate consumer demand adjustment process to a temporarily unfavorable shock. The results suggest that effects of positive and negative information to adjustment of consumption and risk perception are asymmetric over time.