utility covariances and context effects in conjoint mnp models experimental conjoint choice analysis is among the most frequently used methods for measuring and analyzing consumer preferences the data from such experiments have been typically analyzed with the multinomial logit mnl model however there are several problems associated with the standard mnl model because it is based on the assumption that the error terms of the underlying random utilities are independent across alternatives choice sets and subjects the multinomial probit model mnp is well known to alleviate this assumption of independence of the error terms accounting for covariances in utilities in modeling choice experiments with the mnp is important because variation of the coefficients in the choice model may occur due to context effects previous research has shown that subjects utilities for alternatives depend on the choice context that is the particular set of alternatives evaluated simonson and tversky s tradeoff contrast principle describes the effect of the choice context on attribute importance and patterns of choice they distinguish local contrast effects which are caused by the alternatives in the offered set only and background contrast effects which are due to the influence of alternatives previously considered in choice experiments these effects are hypothesized to cause correlations in the utilities of alternatives within and across choice sets respectively the purpose of this study is to develop an mnp model for conjoint choice experiments this model is important for a more detailed study of choice patterns in those experiments in developing the mnp model for conjoint choice experiments several hurdles need to be taken related to the identification of the model and to the prediction of holdout profiles to overcome those problems we propose a random coefficients rc model that assumes a multivariate normal distribution of the regression coefficients with a rank one factor structure on the covariance matrix of these regression coefficients the parameters in this covariance matrix can be used to identify which attributes and levels of attributes are potentional sources of dependencies between the alternatives and choice sets in a conjoint choice experiment we present several versions of this model moreover for each of these models we allow utilities to be either correlated or independent across choice sets the independent probit ip model is used as a benchmark given the dimensionality of the integrations involved in computing the choice probabilities the models are estimated with simulated likelihood where simulations are used to approximate the integrals involved in the choice probabilities we apply and compare the models in two conjoint choice experiments in both applications the random coefficients mnp model that allows choices in different choice sets to be correlated rc displays superior fit and predictive validity compared with all other models we hypothesize that the difference in fit occurs because the rc model accommodates correlations among choice sets that are caused by background contrast effects whereas the model that treats choice sets as independent irc accounts for local contrast effects only the irc model shows superior model fit compared with the ip model but its predictions are worse than those of the ip model we find differences in the importance of local and background contrast effects for choice sets containing different numbers of alternatives the background contrast effect may be stronger for smaller choice sets whereas the local contrast effect may be stronger for bigger choice sets we illustrate the differences in simulated market shares that are obtained from the rc irc and ip models in three hypothetical situations product modification product line extension and the introduction of a me too brand in all of those situations substantially different market shares are predicted by the three models which illustrates the extent to which erroneous predictions may be obtained from the misspecified irc and ip models

retrieving unobserved consideration sets from household panel data the authors propose a new model to capture unobserved consideration from discrete choice data this approach allows for unobserved dependence in consideration among brands easily copes with many brands and accommodates different effects of the marketing mix on consideration and choice as well as unobserved consumer heterogeneity in both processes an important goal of this study is to establish the validity of the existing practice to infer consideration sets from observed choices in panel data the authors show with experimental data that underlying consideration sets can be reliably retrieved from choice data alone and that consideration is positively affected by display and shelf space next the model is applied to information resources inc panel data the findings suggest that promotion effects are larger when they are included in the consideration stage of the two stage model than in a single stage model the authors also find that consideration covaries across brands and that this covariation is mainly driven by unobserved consumer heterogeneity finally the authors show the implications of the model for promotion planning relative to a more standard model of choice

an ideal point probabilistic choice model for heterogeneous preferences this paper presents a new ideal point probabilistic choice model unlike the model suggested by cooper and nakanishi cooper l g m nakanishi 1983 two logit models for external analysis of preferences psychometrika48 4 607 619 which attempts to capture choices via a single ideal point the proposed model though based on aggregate data allows for heterogeneity in preferences by estimating a distribution of ideal points the model accounts for substitutability among choice alternatives and alleviates one of the major sources for the violation of the independence from irrelevant alternatives property it is demonstrated that the final form of the model is a multinomial probit with a covariance matrix that depends on the relative position of the choice alternatives an empirical application is provided and the resulting parameters are compared to the distributions of ideal points and attribute weights obtained via linmap at the individual level and via both the logit and probit versions of the model proposed by cooper and nakanishi at the aggregate level

extremeness aversion and attribute balance effects in choice consumers often make decisions based on the extremeness of choice alternatives prior research has argued that extremeness aversion is a function of the relational properties of choice alternatives and that the middle option defined such that its attribute values are between the values of the other alternatives is always viewed as the least extreme compromise option the attribute balance hypothesis advanced in this article extends prior research demonstrating that extremeness aversion is also a function of the dispersion of attribute values within each alternative in particular it is argued that an option with equal attribute ratings will be perceived as the compromise alternative even when it is not the middle option data from three studies support this prediction offering converging evidence for the attribute balance effect in different decision contexts theoretical implications of the findings are discussed in the context of the extant extremeness aversion research

stimulus context and the formation of consumer ideals when a choice set consists of a distribution of alternatives with correlated benefits and costs consumers often exhibit single peaked preferences they prefer an alternative having moderate costs and benefits theories disagree about how adding additional lower benefit lower cost or higher benefit higher cost alternatives to this choice set will affect relative preferences for the initial set of alternatives prototype theory predicts that adding alternatives should produce assimilation whereas multiattribute range frequency theory predicts that it creates contrast we reconcile these two theories by assuming that single peaked preferences reflect a composition of underlying benefit and cost valuations moreover we claim that the correlational structure of the benefit and cost dimensions in the contextual stimuli determines whether these stimuli will exert an assimilation or contrast effect we show that when benefits and costs are correlated uncorrelated adding alternatives that extend the range of offerings produces assimilation contrast for preference judgments we propose a cost benefit trade off model that incorporates elements of single peaked preference theory and range frequency theory to explain the complex fashion in which contextual stimuli affect consumer ideals

the limits of attraction consumer research has documented dozens of instances in which the introduction of an irrelevant third option affects preferences between the remaining two in nearly all such cases the unattractive dominated option enhances the attractiveness of the option it most resembles a phenomenon known as the attraction effect in the studies presented here however the authors contend that this phenomenon may be restricted to stylized product representations in which every product dimension is represented by a number e g a toaster oven that has a durability rating of 7 2 and ease of cleaning rating of 5 5 such effects do not typically occur when consumers experience the product e g taste a drink or when even one of the product attributes is represented perceptually e g differently priced hotel rooms whose quality is depicted with a photo the authors posit that perceptual representations of attributes do not support the sorts of comparisons that drive the attraction effect with highly stylized e

pollution control through price incentives the role of rent seeking costs in monopoly markets abstract we consider the effect of rent seeking costs on the design of an efficient pollution tax earlier work has concluded that a pollution tax levied on an otherwise unregulated monopoly should always be less than the pigouvian rate this study demonstrates that if rent seeking costs are present the appropriate discharge tax for a monopoly firm can equal or exceed the marginal damage from its pollution calculations reveal that under a wide range of conditions the ideal corrective tax for a monopoly firm is very close to the fully internalizing pigouvian tax

could ralph nader s entrance and exit have helped al gore the impact of decoy dynamics on consumer choice abstract people are frequently faced with making a new choice decision after a preferred option becomes unavailable prior research on the attraction effect has demonstrated how the introduction of an option into a choice set increases the share of one of the original options the authors examine the related but previously unaddressed issue of whether the unexpected exit of an option from a choice set returns the choice shares of the original options to the status quo in a series of experiments they observe that when an option turns out to be unselectable following a choice problem in which it was selectable the choice shares of the remaining options are predictably different from those of a choice problem in which the option was unselectable from the start they also observe that this attraction effect due to the disappearance of a decoy is likely a consequence of changes in the importance of decision criteria they conclude with a discussion of the theoretical and managerial implications of the research

constructive consumer choice processes consumer decision making has been a focal interest in consumer research and consideration of current marketplace trends e g technological change an information explosion indicates that this topic will continue to be critically important we argue that consumer choice is inherently constructive due to limited processing capacity consumers often do not have well defined existing preferences but construct them using a variety of strategies contingent on task demands after describing constructive choice consumer decision tasks and decision strategies we provide an integrative framework for understanding constructive choice review evidence for constructive consumer choice in light of that framework and identify knowledge gaps that suggest opportunities for additional research

market boundaries and product choice illustrating attraction and substitution effects what happens to the share of choices each item receives when the choice set boundaries are extended by adding a new item that is extremely good on one dimension but poor on the others first there is a substitution effect whereby the new item takes choice share mainly from similar items in the set second there is an attraction effect resulting in a general shift of preference toward the added item experimental studies show that choice patterns conflict with current theoretical and common sense ideas about the effect of added alternatives on choice

a multiattribute model of consumer choice during product learning the processes of consumer preference formation during product learning are analyzed a hypothesis about how individuals form attribute expectations is used to derive a dynamic multinomial logit model of individual choice which endogenously recognizes product learning the model and its underlying assumptions are then tested in the context of an interactive grocery store learning game the results support most elements of the proposed model structure an assumption of temporal stationarity in attribute salience however could not be supported approaches to implementation of the model are discussed and implications for marketing management and research in individual choice modeling are addressed

adding asymmetrically dominated alternatives violations of regularity and the similarity hypothesis an asymmetrically dominated alternative is dominated by one item in the set but not by another adding such an alternative to a choice set can increase the probability of choosing the item that dominates it this result points to the inadequacy of many current choice models and suggests product line strategies that might not otherwise be intuitively plausible

new products the antidote to private label growth abstract as private labels pls continue to grow in power and market share product innovation has become one of the strongest weapons in the national brand nb manufacturer s arsenal in this article the author assesses when and to what extent new products change nbs market position to address this question more than 300 nb and pl introductions are analyzed using a multibreak model that quantifies the impact of product introductions on own share rival nb and pl share and category sales drawing on empirical generalizations the author finds that products introduced by leading nbs standard pls and premium pls are more likely to increase category sales than products introduced by follower nbs or economy pls new products introduced by leader and follower nbs more often boost own share thus new products help prevent the decline of nb shares with respect to competitive impact new products affect rival shares with the exception of those launched by economy pls still nbs tend to hurt rival nbs

the influence of serotonin deficiency on choice deferral and the compromise effect abstractpsychological and physiological states such as mood hunger stress and sleep deprivation are known to affect decision making processes and therefore crucially influence consumer behavior a possible biological mechanism underlying the observed variability of consumer behavior is the context sensitive variation in the levels of neuromodulators in the brain in a series of four experimental studies the authors pharmaceutically reduce the levels of the neurotransmitter serotonin in the brain to diminish the availability of subjects cognitive resources in doing so they study how serotonin brain levels influence 1 subjects tendency to avoid buying and 2 consumers preference for product options positioned as a compromise in a given choice set rather than for more extreme alternatives i e the compromise effect using realistic product choice scenarios in a binding decision framework they find that a reduction of brain serotonin levels leads to choice deferral and decreases the compromise

the role of explanations and need for uniqueness in consumer decision making unconventional choices based on reasons this research investigates the interaction between a very common task explaining decisions and an individual difference need for uniqueness nfu on buyer decision making we propose that explaining or providing reasons for decisions shifts the focus from the choice of options to the choice of reasons furthermore buyers who explain their decisions and have high nfu tend to select unconventional reasons and are consequently more likely to make unconventional choices these predictions were supported in a series of studies involving choices between conventional and less conventional options such as whether to switch to a brand on sale whether to select a compromise option and whether to accept a gamble with a possible loss the findings also indicate that the effects of providing reasons are not due to attempts to act rationally or to concerns about being evaluated three boundary conditions on the generalization that high nfu consumers who provide reasons tend to make unconventional choices we

a context dependent model of the gambling effect this paper presents a context dependent theory of decision under risk the relevant contextual factor is the presence of a riskless lottery in a preference comparison the theory only deviates from expected utility if the set of options contains both riskless and risky lotteries the main motivation for the theory is to explain the gambling effect contrary to previous theories of the gambling effect the present theory is consistent with stochastic dominance it can however violate transitivity the theory allows for a decomposition of the interaction between risk aversion and gambling aversion and thereby extends the classical arrow pratt measure of risk aversion

the effect of forced choice on choice abstract whereas most academic and industry studies of consumer preferences and decision making involve forced choice i e participants are told to choose one of the presented product or service alternatives buyers usually also have the option not to select any alternative an implicit assumption in the experimental practice of forcing choice is that the no choice option draws proportionately from the various available alternatives such that the qualitative conclusions are unaffected however the authors propose that the no choice option competes most directly with alternatives that buyers tend to select when they are uncertain about their preferences building on this general proposition the authors show that the introduction of the no choice option strengthens the attraction effect weakens the compromise effect and decreases the relative share of an option that is average on all dimensions they also examine the mechanisms underlying the impact of having the option not to choose and the condi

context dependent preferences the standard theory of choice based on value maximization associates with each option a real value such that given an offered set the decision maker chooses the option with the highest value despite its simplicity and intuitive appeal there is a growing body of data that is inconsistent with this theory in particular the relative attractiveness of x compared to y often depends on the presence or absence of a third option z and the market share of an option can actually be increased by enlarging the offered set we review recent empirical findings that are inconsistent with value maximization and present a context dependent model that expresses the value of each option as an additive combination of two components a contingent weighting process that captures the effect of the background context and a binary comparison process that describes the effect of the local context the model accounts for observed violations of the standard theory and provides a framework for analyzing context dependent p

multi product pricing for electric power abstract this paper describes methods for determining the prices for a discrete set of interrelated products offered by a single supplier each product has a fixed marginal rate per unit the demand for each product depends upon the price levels of all the products and the supplier s cost function depends upon the demands for all the products for specific demand function forms methods are described for determining the prices that maximize a weighted sum of net revenue and consumer surplus

the asymmetric impact of context on advantaged versus disadvantaged options abstractdespite substantial prior research regarding the effect of context on choices uncertainty remains regarding when particular context effects will be observed in this article the authors advance a new perspective on context dependent choices according to which context effects are a function of the relative advantage of one option over another and of the different strategies that decision makers evoke when making a choice they propose that context effects resulting from the addition of a third option to a two option set are more frequently observed when the added option is relatively similar adjacent to the disadvantaged alternative i e the lower share option in the set the authors conduct a series of studies to analyze the occurrence of context effects and find support for predictions related to asymmetric dominance and extremeness aversion

choice based on reasons the case of attraction and compromise effects building on previous research this article proposes that choice behavior under preference uncertainty may be easier to explain by assuming that consumers select the alternative supported by the best reasons this approach provides an explanation for the so called attraction effect and leads to the prediction of a compromise effect consistent with the hypotheses the results indicate that 1 brands tend to gain share when they become compromise alternatives in a choice set 2 attraction and compromise effects tend to be stronger among subjects who expect to justify their decisions to others and 3 selections of dominating and compromise brands are associated with more elaborate and difficult decisions

effects of competitive context and of additional information on price sensitivity previous marketing research on the effects of price has tended to ignore the role of such moderating variables as competitive context and the availability of additional information the authors presented subjects with forced choice decisions in several product categories using a multinomial logit formulation to measure price sensitivity they find relatively lower price sensitivity 1 when a brand is placed at the upper price quality boundary of a choice set rather than in the middle 2 when only brand names are provided as opposed to only quality ratings and 3 when quality information is added to available brand name information they discuss the theoretical and managerial implications of these findings

decoy effects in choice experiments and contingent valuation asymmetric dominance while a dominated choice involves a situation in which one option clearly dominates another on all relevant dimensions an asymmetrically dominated choice typically arises where at least two options do not dominate each other and one but not both of those options does dominate a third option we demonstrate that the introduction of such an asymmetrically dominated option can have a significant impact upon choices between non dominated options within the same choice set for non market goods furthermore we show that this effect can then translate into significant impacts upon subsequent valuations for those non dominated options

predictive testing of consumer choice models not subject to independence of irrelevant alternatives the probabilistic modeling of the relationship between objective or perceived characteristics of multiattribute alternatives and consumer choice is receiving increased attention in marketing and ot

a monetary measure of the strength and robustness of the attraction effect the attraction effect has been studied in conditions of indifference among options and measured at the aggregate level we introduce a new within subjects design based on induced preferences and psychometrics our method yields two individual level measures the traditional frequency measure and a new monetary indicator the monetary indicator measures the robustness of the effect to decreases in the relative utility of the target with respect to the competitor we find choice frequencies consistent with the literature our monetary measure shows that subjects still prefer the target up to the point where it is 8 more expensive than the competitor

the economics of tax amnesties abstract this paper examines some of the economic implications of tax amnesties we present a model where individuals are initially uncertain about the disutility from tax evasion when they file their tax returns if they later learn that they would like to be more honest than they have been an amnesty gives them an opportunity to report additional income we also show that as the probability of an amnesty rises people report less income as a consequence an optimal collection policy requires the government to balance the cost of lost tax revenue against the gains from an amnesty