Enhancing Consumer Choice: Are We Making Appropriate Recommendations?.

In a society filled with complex consumer choices, many groups provide aids to facilitate the consumer choice-making process. These aids typically reduce the costs associated with information acquisition and use, and are based on a particular type of consumer choice model. The groups making these aids available to consumers range from disinterested third parties, such as the Cooperative Extension Service, to parties with significant conflicts of interest, such as corporate marketing departments. Potential conflicts of interest aside, there is still the issue of whether choice-making aids reflect consumers' actual preferences or the preferences of those developing and offering the aids. For example, Consumer Reports provides quality rankings which collapse information on many product attributes into a single indicator of product quality. While the framework Consumers Union uses to assess quality must be inferred, it appears to typically permit the trading of one product/service attribute for another - unless safety is involved. An approach based on trading one attribute for another is intuitively appealing because it is equated with the type of tradeoffs associated with utility maximization. There is, however, no compelling empirical or logical reason as to why consumer choice models allowing tradeoffs are the only appropriate models. Empirical research of consumer choices typically uses a descriptive approach to the study of choice models. Descriptive studies describe how and why consumers think and act (Bell, Raiffa, and Tversky 1988). These studies may not provide a good base for consumer decision-making aids because identified choice models may not always be consistent with consumers' true preferences. The authors of this paper believe consumers have "true preferences" which are reasonably well developed, stable, and not distorted by the cost elements associated with the decision-making process. To identify a consumer's true preferences, it is necessary to distinguish two types of empirically derived choice models: descriptive choice models and "ideal choice models" that describe "how and why" based on a consumer's true preferences. In an environment with no search costs, descriptive choice models will likely coincide with ideal choice models. However, when decision making is a costly activity, consumers may use, for example, heuristics to reduce decision-making effort. In this situation, descriptive choice models are likely to deviate from ideal choice models. Thus, empirical determination of consumers' ideal choice models requires that choices be made in a low cost decision-making environment. In this paper, consumers' ideal choice models are identified using a conjoint experiment in which information acquisition and use costs are minimized. This study addresses the following questions. Is there variability across consumers with respect to their ideal choice models? If ideal choice models vary across consumers, what are the different kinds of ideal models? Do all ideal choice models permit trade-offs? Do these models systematically vary by type of consumer? And, what are the implications of these findings with respect to the development and use of consumer choice-making aids? CONCEPTUAL BASIS OF STUDY Stochastic Choice Model To address the first two research questions, a stochastic consumer purchase decision model, based on random utility theory, was developed (Lee 1994). This theory is predicated on the supposition that under identical choice situations consumers do not always make the same choices. Under random utility theory, an individual has an unknown "true" utility that consists of two components: (1) a deterministic component which can be inferred from a series of observations on choices and (2) random error. Random utility can be expressed as [U.sub.i] = [V.sub.i] + [[Epsilon].sub.i]] (1) where [U.sup.i] = the utility of alternative i; [V. …