When Old is Gold: The Role of Business Longevity Under Risky Situations

Abstract

We investigate whether or not the information about business longevity affects consumers' perceptions of risk associated with a choice and their choice behavior. We also examine the impact of risk on the value of such information to consumers.

We test the relationship between business longevity and consumer choice using aggregate level data on mutual funds. The results support the idea that consumers favor older funds to newer funds. This preference for older funds is stronger for more volatile funds. Next, we find corroborative evidence for this result at the individual level in two experiments in service market contexts. After establishing consumers' preference for older firms, we investigate reasons for their preference. In Experiment 3, we show that consumers perceive less risk in choosing an older service provider, and that lowered perception of risk affects consumers' choice. We also find that lowered perceptions of risk arise due to experience and survival cue effects. In addition, holding business longevity fixed, greater availability of data about a firm reduces consumers' perceptions of risk. In the final experiment, we investigate the effect of performance relative to an external benchmark. We find that the existence of a benchmark does not affect our earlier findings.