Agent-Based Modeling of Context Effects in Consumer Choice

This paper presents an agent-based model that explains three major context effects: decoy, similarity, and compromise effects, commonly observed in consumer decision-making. The model uses loss aversion theory, using a utility function that evaluates products relative to a reference point, defined by the average price and quality of all competing options. Agents are characterized by varying sensitivities to price and quality. Rather than forecasting exact consumer numbers, the model simulates relative preferences within a fixed population, making it a robust tool for analyzing market share dynamics. It accurately reproduces key behavioral phenomena and is calibrated using real-world retail data. Practical applications include price optimization and forecasting the impact of new product introductions. This framework offers a powerful yet focused tool for marketers seeking to understand and leverage consumers behaviors in competitive environments.