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Choice Environment, Market Complexity and Consumer Behavior: A Theoretical and Empirical Approach for Incorporating Decision Complexity into Models of Consumer Choice

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  • Swait, Joffre
  • Adamowicz, Wiktor L.

Abstract

Most empirical models of consumer choice assume that the decision-maker assesses all alternatives and information in a perfect information processing sense. The complexity of the choice environment, the ability of the individual to make complex decisions and the effect of choice context on the decision strategy, are generally not considered in statistical model development. One of the reasons for this omission is that theoretical literature on choice complexity and imperfect ability to choose has not been translated into empirical methods that permit such considerations in econometric analysis. In this paper we outline a theoretical model that considers task complexity, effort applied by the consumer, ability to choose, and choice. We then construct a measure of task complexity and incorporate this in a random utility model. We employ this model in the analysis of a number of data series. Our findings suggest that task complexity does affect inferences about choice model parameters and that context effects, like complexity, have a systematic effect on the parameters of econometric models of choice. Not accounting for complexity or context effects will result in significant bias in the estimated preference parameters.

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Bibliographic Info

Paper provided by University of Alberta, Department of Resource Economics and Environmental Sociology in its series Staff Paper Series with number 24093.

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Date of creation: 1999
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Handle: RePEc:ags:ualbsp:24093

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Related research

Keywords: choice modeling; random utility; choice context; Institutional and Behavioral Economics;

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References

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  1. Marisa J. Mazzotta & James J. Opaluch, 1995. "Decision Making When Choices Are Complex: A Test of Heiner's Hypothesis," Land Economics, University of Wisconsin Press, vol. 71(4), pages 500-515.
  2. James G. March, 1978. "Bounded Rationality, Ambiguity, and the Engineering of Choice," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 587-608, Autumn.
  3. Swait, Joffre & Bernardino, Adriana, 2000. "Distinguishing taste variation from error structure in discrete choice data," Transportation Research Part B: Methodological, Elsevier, vol. 34(1), pages 1-15, January.
  4. Adamowicz, Wiktor & Swait, Joffre & Boxall, Peter & Louviere, Jordan & Williams, Michael, 1997. "Perceptions versus Objective Measures of Environmental Quality in Combined Revealed and Stated Preference Models of Environmental Valuation," Journal of Environmental Economics and Management, Elsevier, vol. 32(1), pages 65-84, January.
  5. De Long, J Bradford & Andrei Shleifer & Lawrence H. Summers & Robert J. Waldmann, 1990. "Noise Trader Risk in Financial Markets," Journal of Political Economy, University of Chicago Press, vol. 98(4), pages 703-38, August.
  6. Adamowicz W. & Louviere J. & Williams M., 1994. "Combining Revealed and Stated Preference Methods for Valuing Environmental Amenities," Journal of Environmental Economics and Management, Elsevier, vol. 26(3), pages 271-292, May.
  7. Shugan, Steven M, 1980. " The Cost of Thinking," Journal of Consumer Research, University of Chicago Press, vol. 7(2), pages 99-111, Se.
  8. Heiner, Ronald A, 1983. "The Origin of Predictable Behavior," American Economic Review, American Economic Association, vol. 73(4), pages 560-95, September.
  9. Swait, Joffre & Ben-Akiva, Moshe, 1987. "Incorporating random constraints in discrete models of choice set generation," Transportation Research Part B: Methodological, Elsevier, vol. 21(2), pages 91-102, April.
  10. Dhar, Ravi, 1997. " Consumer Preference for a No-Choice Option," Journal of Consumer Research, University of Chicago Press, vol. 24(2), pages 215-31, September.
  11. Brownstone, David & Train, Kenneth, 1999. "Forecasting new product penetration with flexible substitution patterns," University of California Transportation Center, Working Papers qt1j6814b3, University of California Transportation Center.
  12. Swait, Joffre & Ben-Akiva, Moshe, 1987. "Empirical test of a constrained choice discrete model: Mode choice in São Paulo, Brazil," Transportation Research Part B: Methodological, Elsevier, vol. 21(2), pages 103-115, April.
  13. de Palma, Andre & Myers, Gordon M & Papageorgiou, Yorgos Y, 1994. "Rational Choice under an Imperfect Ability to Choose," American Economic Review, American Economic Association, vol. 84(3), pages 419-40, June.
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