Reverse labeling: Does framing labels as losses promote more ethical, more eco-friendly, and healthier choices?

Abstract

The purpose of this thesis is to investigate the effects of replacing standard labels (labels framed as gains) with reverse labels (labels framed as losses) on making more ethical, more eco-friendly, and healthier consumer choices. Previous literature suggests that standard labels improve both the producer and consumer surplus. However, based on the concepts of loss aversion and contextual inference, we predicted that reverse labels increase the fraction of people that make more sustainable choices. To test this prediction, we conducted a choice experiment randomly assigning respondents to a control group exposed to standard labels or to a treatment group exposed to reverse labels. Using OLS estimation, our analysis concluded that the students exposed to reverse labeling had a higher probability of 32.8 percentage points of selecting the more ethical option and 19.6 percentage points of selecting the more eco-friendly option than the students exposed to standard labeling. Further, the ones without strong opinions towards sustainability were most influenced by reverse labeling. When exposed to reverse labeling, they were on average 25 percentage points more likely to choose the sustainable option than those who consider sustainability important to them. Interestingly, reverse labeling did not have a differential impact on how the products were perceived in terms of quality or sustainability. Therefore, the findings suggest that loss aversion may be the primary driver of the change in decisions: people use the unlabeled product as the reference point and are less willing to gain an attribute than lose the same attribute. The current findings imply that there could be substantial gains from reversing the process of sustainable labeling. However, further research on a more representative consumer sample is needed prior to enforcing a new policy.