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Integration-segregation decisions under general value functions : "Create your own bundle -- choose 1, 2, or all 3 !"

Author

Listed:
  • Martín Egozcue

    (UCUR - Universidad de la República [Montevideo])

  • Sébastien Massoni

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Wing-Keung Wong

    (HKBU - Hong Kong Baptist University)

  • Ričardas Zitikis

    (Department of Statistical and Actuarial Sciences - UWO - University of Western Ontario)

Abstract

Whether to keep products segregated (e.g., unbundled) or integrate some or all of them (e.g., bundle) has been a problem of profound interest in areas such as portfolio theory in finance, risk capital allocations in insurance, and marketing of consumer products. Such decisions are inherently complex and depend on factors such as the underlying product values and consumer preferences, the latter being frequently described using value functions, also known as utility functions in economics. In this paper, we develop decision rules for multiple products, which we generally call 'exposure units' to naturally cover manifold scenarios spanning well beyond 'products'. Our findings show, for example, that the celebrated Thaler's principles of mental accounting hold as originally postulated when the values of all exposure units are positive (i.e., all are gains) or all negative (i.e., all are losses). In the case of exposure units mixed-sign values, decision rules are much more complex and rely on cataloging the Bell-number of cases that grow very fast depending on the number of exposure units. Consequently, in the present paper we provide detailed rules for the integration and segregation decisions in the case up to three exposure units, and partial rules for the arbitrary number of units.

Suggested Citation

  • Martín Egozcue & Sébastien Massoni & Wing-Keung Wong & Ričardas Zitikis, 2012. "Integration-segregation decisions under general value functions : "Create your own bundle -- choose 1, 2, or all 3 !"," Post-Print halshs-00747008, HAL.
  • Handle: RePEc:hal:journl:halshs-00747008
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00747008
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    Cited by:

    1. Kim-Hung Pho & Tuan-Kiet Tran & Thi Diem-Chinh Ho & Wing-Keung Wong, 2019. "Optimal Solution Techniques in Decision Sciences A Review," Advances in Decision Sciences, Asia University, Taiwan, vol. 23(1), pages 114-161, March.
    2. Chia-Lin Chang & Michael McAleer & Wing-Keung Wong, 2018. "Big Data, Computational Science, Economics, Finance, Marketing, Management, and Psychology: Connections," Journal of Risk and Financial Management, MDPI, Open Access Journal, vol. 11(1), pages 1-29, March.
    3. Kim-Hung Pho & Thi Diem-Chinh Ho & Tuan-Kiet Tran & Wing-Keung Wong, 2019. "Moment Generating Function, Expectation And Variance Of Ubiquitous Distributions With Applications In Decision Sciences: A Review," International Association of Decision Sciences, Asia University, Taiwan, vol. 23(2), pages 65-150, June.
    4. Chia-Lin Chang & Michael McAleer & Wing-Keung Wong, 2018. "Decision Sciences, Economics, Finance, Business, Computing, and Big Data: Connections," Documentos de Trabajo del ICAE 2018-09, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    5. Chia-Lin Chang & Michael McAleer & Wing-Keung Wong, 2018. "Decision Sciences, Economics, Finance, Business, Computing, And Big Data: Connections," International Association of Decision Sciences, Asia University, Taiwan, vol. 22(1), pages 36-94, December.

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    More about this item

    Keywords

    Bell number; Bundling; marketing; mental accounting; portfolio theory; value fonction; utility function; majorization; functional inequalities; Bell number.; Package; comptabilité mentale; théorie de portefeuille; fonctions d'utilité; majorisation; inégalités fonctionnelles; nombre de Bell.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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