A Bayesian approach to the evaluation of stochastic signals of product quality

This paper explores consumers' use of stochastic signals of product quality from a Bayesian perspective. Stochastic signals are implicit in many of the analyses on signal usage in the marketing literature and yet formal analysis of their use has been relatively limited. The basis for our analysis is a seminal paper by Winkler on combining experts' forecasts into a single consensus distribution, together with the resulting literature to which this has given rise. This is a substantial body of literature and represents a readily available fund of results which can be used within the marketing context. Hence, it is shown that the weights on different signals will be inversely related to the variance of the signal and need not be convex. It is also shown that for repeatedly purchased goods, signals will play a decreasing role as the consumer gains experience of the good.

[1]  G. Anandalingam,et al.  Linear combination of forecasts: A general Bayesian model , 1989 .

[2]  A. Rao,et al.  The Moderating Effect of Prior Knowledge on Cue Utilization in Product Evaluations , 1988 .

[3]  Paul R. Milgrom,et al.  Price and Advertising Signals of Product Quality , 1986, Journal of Political Economy.

[4]  Leonard M. Lodish,et al.  How T.V. Advertising Works: A Meta-Analysis of 389 Real World Split Cable T.V. Advertising Experiments , 1995 .

[5]  John Hudson,et al.  Standardization and the costs of assessing quality , 1996 .

[6]  Jerry C. Olson,et al.  Perceived quality : how consumers view stores and merchandise , 1985 .

[7]  Lakshman Krishnamurthi,et al.  A Probit Model of Choice Dynamics , 1992 .

[8]  J. M. Bates,et al.  The Combination of Forecasts , 1969 .

[9]  C. Hjorth-Andersen.  Quality Indicators: in Theory and in Fact , 1991 .

[10]  T. Tyszka,et al.  Perception and judgments of the economic system , 1992 .

[11]  G. Haines,et al.  The Theory of Buyer Behavior. , 1970 .

[12]  C. E. Agnew,et al.  Bayesian consensus forecasts of macroeconomic variables , 1985 .

[13]  Peter A. Morris,et al.  Combining Expert Judgments: A Bayesian Approach , 1977 .

[14]  Robert S. Wyer,et al.  Effects of Country-of-Origin and Product-Attribute Information on Product Evaluation: An Information Processing Perspective , 1989 .

[15]  Rick L. Andrews.  Economics of information and heterogeneous products , 1992 .

[16]  R. C. Stokes.  THE EFFECTS OF PRICE, PACKAGE DESIGN, AND BRAND FAMILIARITY ON PERCEIVED QUALITY. , 1974 .

[17]  R. Meyer.  A Theory of the Inductive Learning of Multiattribute Preferences , 1986 .

[18]  David Brinberg,et al.  Perspectives on methodology in consumer research , 1986 .

[19]  Peter Isard,et al.  The Effectiveness of Using the Tax System to Curb Inflationary Collective Bargains: An Analysis of the Wallich-Weintraub Plan , 1973, Journal of Political Economy.

[20]  Carlisle E. Moody,et al.  Quality, Price, Advertising, and Published Quality Ratings , 1983 .

[21]  Philip Jones,et al.  Measuring the efficiency of stochastic signals of product quality , 2001, Inf. Econ. Policy.

[22]  Jehoshua Eliashberg,et al.  New Product Announcement Signals and Incumbent Reactions , 1995 .

[23]  Manfred F. Maute,et al.  The effect of attribute qualities on consumer decision making: a causal model of external information search , 1991 .

[24]  Donald R. Lehmann,et al.  The Effects of Advertised and Observed Quality on Expectations about New Product Quality , 1995 .

[25]  Kuo-yuan Liang.  On the sign of the optimal combining weights under the error‐variance minimizing criterion , 1992 .

[26]  A. Tversky,et al.  On the Reconciliation of Probability Assessments , 1979 .

[27]  P. Nelson.  Advertising as Information , 1974, Journal of Political Economy.

[28]  P. Parker.  “Sweet Lemons”: Illusory Quality, Self-Deceivers, Advertising, and Price , 1995 .

[29]  Jerry C. Olson,et al.  Price, brand name, and product composition characteristics as determinants of perceived quality. , 1971 .

[30]  R. L. Winkler.  Combining Probability Distributions from Dependent Information Sources , 1981 .

[31]  John Hudson,et al.  Signalling product quality: When is price relevant? , 1996 .

[32]  P. Nelson.  Information and Consumer Behavior , 1970, Journal of Political Economy.

[33]  M. Keane,et al.  Decision-Making Under Uncertainty: Capturing Dynamic Brand Choice Processes in Turbulent Consumer Goods Markets , 1996 .

[34]  T. Scitovszky.  Some Consequences of the Habit of Judging Quality by Price , 1944 .