Ambiguity aversion and the power of established brands
AbstractThis paper investigates situations where a sizeable sub-set of consumers prefer an inferior (dominated) offer made by an established brand to a superior (dominating) offer made by a less-established brand. Established brands are those for which consumers hold more confident beliefs concerning overall quality. Through a series of eight experiments, we test the hypothesis that the preference for a dominated established brand is linked to ambiguity aversion, a seemingly unrelated pattern of choice behavior between monetary gambles. We first show a correlation between ambiguity aversion and the preference for dominated established brands. We then demonstrate that the preference for established brands is enhanced when ambiguity aversion is made more salient in unrelated preceding choices. To further study the ambiguity-reducing properties of established brands, the last experiments assign brand names to monetary gambles, and it appears that (a priori unrelated) established brand names increase the likelihood of choosing ambiguous gambles. Overall, this research argues that brand equity for longstanding brands derives (at least in part) from consumers' tendency to avoid ambiguity.
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Bibliographic InfoPaper provided by ESMT European School of Management and Technology in its series ESMT Research Working Papers with number ESMT-07-005.
Length: 27 pages
Date of creation: 29 Nov 2007
Date of revision:
Publication status: Published in Management Science 55(12): 1993-1941.
branding; brand choice; consumer behavior; decision making under uncertainty;
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D10 - Microeconomics - - Household Behavior - - - General
- D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
- M31 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Marketing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-08 (All new papers)
- NEP-CBE-2007-12-08 (Cognitive & Behavioural Economics)
- NEP-EXP-2007-12-08 (Experimental Economics)
- NEP-MKT-2007-12-08 (Marketing)
- NEP-UPT-2007-12-08 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Kahn, Barbara E & Sarin, Rakesh K, 1988. " Modeling Ambiguity in Decisions under Uncertainty," Journal of Consumer Research, University of Chicago Press, vol. 15(2), pages 265-72, September.
- Yoram Halevy, 2007.
"Ellsberg Revisited: An Experimental Study,"
Econometric Society, vol. 75(2), pages 503-536, 03.
- Camerer, Colin & Weber, Martin, 1992. " Recent Developments in Modeling Preferences: Uncertainty and Ambiguity," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 325-70, October.
- Fox, Craig R & Tversky, Amos, 1995. "Ambiguity Aversion and Comparative Ignorance," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 585-603, August.
- Sherman, Roger, 1974. "The Psychological Difference Between Ambiguity and Risk," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 166-69, February.
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