A rational reconstruction of the compromise effect: using market data to infer utilities

Article Abstract:

This article explores the possibility that consumers use market data to make inferences about product utilities. The argument is made by means of an example based on the "compromise effect" found in extant experimental data. This phenomenon is generally looked at as a manifestation of deviations from rationality in choice. However, assuming full rationality, I describe a decision rule that is based on consumers' inferences about their personal valuation of alternatives from the portfolio of market offerings and some information about their own relative tastes. Through a number of examples, I will argue that consumers often use this or similar decision rules to make inferences about utility. I then show that the decision rule may generate compromise effects in experiments and that it may be sustainable. The compromise effect could therefore be seen as preliminary evidence that consumers make such inferences. (Reprinted by permission of the publisher.)

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An evaluation cost model of consideration sets

Article Abstract:

If utility (net of price) varies by consumption occasion, the consideration set of a rational consumer will represent trade-offs between decision costs and the incremental benefits of choosing from a larger set of brands. If evaluating a brand decreases biases and uncertainty in perceived utility, the decision to evaluate a brand for inclusion in a consideration set is different from the decision to consider an evaluated brand. The decision to consume is, in turn, different from the decision to consider. This article provides analytical expressions for these decision criteria and presents four aggregate implications of the model: (1) distributions of consideration set sizes, (2) order-of-entry penalties, (3) dynamic advertising response, and (4) competitive promotion intensity. (Reprinted by permission of the publisher.)

Evaluation, Advertising, Consumer behavior, Brand name products, Brand names, Cost (Economics), Costs (Economics)

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The role of inference in context effects: inferring what you want from what is available

Article Abstract:

It has recently been suggested that a number of experimental findings of context effects in choice settings can be explained by the ability of subjects to draw choice-relevant inferences from the stimuli. We aim to measure the importance of this explanation. To do so, inferences are assessed in an experiment using the basic context-effect design, supplemented by direct measures of inferred locations of available products on the price-quality Hotelling line. We use these measures to estimate a predicted context effect due to inference alone. For our stimuli, we find that the inference effect accounts for two-thirds of the average magnitude of the context effect and for about one-half of the cross-category context-effect variance. (Reprinted by permission of the publisher.)

Context effects (Psychology), Inference

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