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The Impact of Utility Balance and Endogeneity in Conjoint Analysis

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  • John R. Hauser

    ()
    (MIT Sloan School of Management, Massachusetts Institute of Technology, E56-314, 38 Memorial Drive, Cambridge, Massachusetts 02142)

  • Olivier Toubia

    ()
    (Columbia Business School, Columbia University, 522 Uris Hall, 3022 Broadway, New York, New York 10027)

Abstract

Adaptive metric utility balance is at the heart of one of the most widely used and studied methods for conjoint analysis. We use formal models, simulations, and empirical data to suggest that adaptive metric utility balance leads to partworth estimates that are relatively biased—smaller partworths are upwardly biased relative to larger partworths. Such relative biases could lead to erroneous managerial decisions. Metric utility-balanced questions are also more likely to be inefficient and, in one empirical example, contrary to popular wisdom, lead to response errors that are at least as large as nonadaptive orthogonal questions. We demonstrate that this bias is because of endogeneity caused by a “winner’s curse.” Shrinkage estimates do not mitigate these biases. Combined with adaptive metric utility balance, shrinkage estimates of heterogeneous partworths are biased downward relative to homogeneous partworths. Although biases can affect managerial decisions, our data suggest that, empirically, biases and inefficiencies are of the order of response errors. We examine viable alternatives to metric utility balance that researchers can use without biases or inefficiencies to retain the desired properties of (1) individual-level adaptation and (2) challenging questions.

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File URL: http://dx.doi.org/10.1287/mksc.1040.0108
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Bibliographic Info

Article provided by INFORMS in its journal Marketing Science.

Volume (Year): 24 (2005)
Issue (Month): 3 (August)
Pages: 498-507

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Handle: RePEc:inm:ormksc:v:24:y:2005:i:3:p:498-507

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Keywords: conjoint analysis; efficient question design; adaptive question design; Internet market research; e-commerce; product development;

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Cited by:
  1. David Hensher & Sean Puckett & John Rose, 2007. "Extending stated choice analysis to recognise agent-specific attribute endogeneity in bilateral group negotiation and choice: a think piece," Transportation, Springer, vol. 34(6), pages 667-679, November.
  2. Srinivasan, V. "Seenu" & Netzer, Oded, 2007. "Adaptive Self-Explication of Multi-attribute Preferences," Research Papers 1979, Stanford University, Graduate School of Business.
  3. Gensler, Sonja & Hinz, Oliver & Skiera, Bernd & Theysohn, Sven, 2012. "Willingness-to-pay estimation with choice-based conjoint analysis: Addressing extreme response behavior with individually adapted designs," European Journal of Operational Research, Elsevier, vol. 219(2), pages 368-378.
  4. Campbell, Danny & Doherty, Edel & Gibson, Vikki, 2011. "Choosing ‘buy none’ in food choice analysis: the role of utility balance," 85th Annual Conference, April 18-20, 2011, Warwick University, Coventry, UK 108951, Agricultural Economics Society.

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