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Bayesian Analysis of Consumer Choices with Taste, Context, Reference Point and Individual Scale Effects

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  • Hu, Wuyang
  • Adamowicz, Wiktor L.
  • Veeman, Michele M.

Abstract

This paper adopts an approach based on the concepts of random utility maximization and builds on the general theoretical framework of Lancaster and on the conceptual and econometric innovations of McFadden. Recent research in this area explores models that account for context effects, as well as methods for characterizing heterogeneity, response variability and decision strategy selection by consumers. This makes it possible to construct much richer empirical models of individual consumer behavior. A Bayesian approach provides a useful way to estimate and interpret models that are difficult to accomplish by conventional maximization/minimization algorithms. The application reported in the paper involves analysis of reference dependence and product labeling as context effects and the assessment of heterogeneity and response variability.

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File URL: http://purl.umn.edu/19296
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Bibliographic Info

Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2005 Annual meeting, July 24-27, Providence, RI with number 19296.

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Date of creation: 2005
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Handle: RePEc:ags:aaea05:19296

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Keywords: Consumer/Household Economics;

References

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  1. Daniel McFadden, 1998. "Rationality for Economists?," Working Papers 98-09-086, Santa Fe Institute.
  2. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  3. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-91, March.
  4. John A. List, 2003. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," NBER Working Papers 9736, National Bureau of Economic Research, Inc.
  5. Ben-Akiva, Moshe & McFadden, Daniel & Train, Kenneth & Börsch-Supan, Axel, 2002. "Hybrid Choice Models: Progress and Challenges," Sonderforschungsbereich 504 Publications 02-29, Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim.
  6. Elrod, Terry & Keane, Michael, 1995. "A Factor-Analytic Probit Model for Representing the Market Structure in Panel Data," MPRA Paper 52434, University Library of Munich, Germany.
  7. Louviere, Jordan J, 2001. " What If Consumer Experiments Impact Variances as Well as Means? Response Variability as a Behavioral Phenomenon," Journal of Consumer Research, University of Chicago Press, vol. 28(3), pages 506-11, December.
  8. Daniel McFadden, 2001. "Economic Choices," American Economic Review, American Economic Association, vol. 91(3), pages 351-378, June.
  9. Tülin Erdem & Michael P. Keane, 1996. "Decision-Making Under Uncertainty: Capturing Dynamic Brand Choice Processes in Turbulent Consumer Goods Markets," Marketing Science, INFORMS, vol. 15(1), pages 1-20.
  10. Daniel McFadden, 1987. "A Method of Simulated Moments for Estimation of Discrete Response Models Without Numerical Integration," Working papers 464, Massachusetts Institute of Technology (MIT), Department of Economics.
  11. Bera, Anil K. & Bilias, Yannis, 2002. "The MM, ME, ML, EL, EF and GMM approaches to estimation: a synthesis," Journal of Econometrics, Elsevier, vol. 107(1-2), pages 51-86, March.
  12. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  13. Allenby, Greg M. & Rossi, Peter E., 1998. "Marketing models of consumer heterogeneity," Journal of Econometrics, Elsevier, vol. 89(1-2), pages 57-78, November.
  14. Daniel McFadden & Kenneth Train, 2000. "Mixed MNL models for discrete response," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 447-470.
  15. Hu, Wuyang & Adamowicz, Wiktor L. & Veeman, Michele M., 2004. "Decomposing Unobserved Choice Variability In The Presence Of Consumers' Taste Heterogeneity," 2004 Annual meeting, August 1-4, Denver, CO 19954, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  16. Daniel Kahneman, 2003. "Maps of Bounded Rationality: Psychology for Behavioral Economics," American Economic Review, American Economic Association, vol. 93(5), pages 1449-1475, December.
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