(A) study on the effect of choice context and preference uncertainty on consumers' brand choice probability

Abstract

The standard theory of choice assumes that consumers are value maximizers. Consumers choose the alternative with the highest utility value. However, it is to note that the value of each alternative varies depending on choice context, especially on composition of choice set. The term context effect is used to describe the choice behavior violating IIA (Independence of Irrelevant Alternatives) Axiom. Non-IIA choice behaviors can be classified into two major categories: substitutability effect and regularity violation (attraction effect and compromise effect). The thesis proposes a method of measuring substitutability among brands and proposes a graphical tool for positioning which consists of preference and substitutability axes. I develop further the classification of context effects as negative context effect, strong positive effect and weak positive effects and propose a comprehensive context maps for visual representation of the competitive marketing environment. The latter part of the thesis deals with the effect of uncertainty on choice. It is shown that preference uncertainty, often captured as utility variances in random utility context, combined with the loss aversion affect the consumers’ likelihood of adopting reason-based choice. It is also shown that utility variance, without the specific assumption of the distribution function, can affect the upper and lower limits of choice probability using Chebyshev inequality.