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Consumer Preference Axioms: Behavioral Postulates for Describing and Predicting Stochastic Choice

Author

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  • John R. Hauser

    (Northwestern University)

Abstract

This paper draws on econometrics, von Neumann-Morgenstern utility theory, stochastic choice theory, and consumer behavior to develop five basic axioms or postulates of stochastic choice behavior. These axioms imply the existence and uniqueness of a preference function which identifies how consumers evaluate products in terms of product attributes. The preference function produces a scalar goodness measure for each product in a consumer's choice set. These goodness measures then predict choice probabilities for each product in a consumer's choice set. The advantage of these axioms is that they extend the strengths of von Neumann-Morgenstern theory to stochastic choice and make possible the determination of consistent choice probabilities.

Suggested Citation

  • John R. Hauser, 1978. "Consumer Preference Axioms: Behavioral Postulates for Describing and Predicting Stochastic Choice," Management Science, INFORMS, vol. 24(13), pages 1331-1341, September.
    • Handle: RePEc:inm:ormnsc:v:24:y:1978:i:13:p:1331-1341
    DOI: 10.1287/mnsc.24.13.1331
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    Cited by:

    1. Liu, Jiapeng & Liao, Xiuwu & Huang, Wei & Liao, Xianzhao, 2019. "Market segmentation: A multiple criteria approach combining preference analysis and segmentation decision," Omega, Elsevier, vol. 83(C), pages 1-13.
    2. Jordan J. Louviere, 2013. "Modeling single individuals: the journey from psych lab to the app store," Chapters, in: Stephane Hess & Andrew Daly (ed.), Choice Modelling, chapter 1, pages 1-47, Edward Elgar Publishing.
    3. Kim Kaivanto & Eike Kroll, 2014. "Alternation bias and reduction in St. Petersburg gambles," Working Papers 65600286, Lancaster University Management School, Economics Department.
    4. John R. Hauser & Steven Shugan, 1978. "Intensity Measures of Consumer Preferences," Discussion Papers 291, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    5. Manrai, Ajay K., 1995. "Mathematical models of brand choice behavior," European Journal of Operational Research, Elsevier, vol. 82(1), pages 1-17, April.

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