A Hybrid Choice Model that Uses Actual and Ordered Attribute Value Information

Abstract

In the usual multinomial choice model, consumers choose to use “actual value” information; that is, utilities are continuous functions of product attributes (e.g., choices depend on actual magnitudes of price differences). The authors propose an alternative model in which consumers use only “ordered value” information; that is, utilities are functions only of the relative orderings of the attributes' values across alternatives (e.g., choices depend only on the price ordering and not on actual prices). The ordered value model is attractive because it fits well with psychological evidence that consumers often favor decision mechanisms that are cognitively less demanding. Using a supermarket shopper panel data set, the authors evaluate four models in which (1) all consumers use actual values; (2) all consumers use ordered values; (3) some consumers use actual values all the time, and some consumers use ordered values all the time; and (4) all consumers use both actual values and ordered values but with different propensities. In the analysis, the ordered value model finds stronger support than the actual value model: Model 1 outperforms Model 2; in the two hybrid choice models (Models 3 and 4), ordered value processing is more prevalent than actual value processing. These results suggest that consumers in some product categories engage more heavily in ordered value processing than in actual value processing.