Modelling Reference-Dependent and Labelling Effects in Consumers’ Functional Food Choices

This paper examines the reference-dependent and labelling effects when consumers make choices about functional foods, and explores how changes in reference points could alter individuals’ preferences. Functional food (Omega 3 milk) and regular food (regular milk) are used as examples to explore the potential reference-dependent effects and labelling effects. A consumer utility model with reference point effects is developed. The paper also explores how to model the effects of different labelling (health claim) policies, which could influence consumer preferences by changing consumers’ reference points.