Random regret minimization for consumer choice modeling: Assessment of empirical evidence

This paper introduces to the field of marketing a regret-based discrete choice model for the analysis of multi-attribute consumer choices from multinomial choice sets. This random regret minimization (RRM) model, which has recently been introduced in the field of transport, forms a regret-based counterpart of the canonical random utility maximization (RUM) paradigm. This paper assesses empirical results based on 43 comparisons reported in peer-reviewed journal articles and book chapters, with the aim of finding out to what extent, when, and how RRM can form a viable addition to the consumer choice modeler's toolkit. The paper shows that RRM and hybrid RRM–RUM models outperform RUM counterparts in a majority of cases, in terms of model fit and predictive ability. Although differences in performance are quite small, the two paradigms often result in markedly different managerial implications due to considerable differences in, for example, market share forecasts.

[1]  John M. Rose,et al.  Selecting a date: a matter of regret and compromises , 2013 .

[2]  I. Simonson,et al.  Choice Based on Reasons: The Case of Attraction and Compromise Effects , 1989 .

[3]  P. Doyle,et al.  Random utility models in marketing research: a survey , 2001 .

[4]  Caspar G. Chorus,et al.  Modeling experienced accessibility for utility-maximizers and regret-minimizers , 2011 .

[5]  Marco Boeri,et al.  Random Regret Minimization: Exploration of a New Choice Model for Environmental and Resource Economics , 2011 .

[6]  Caspar G. Chorus,et al.  Random Regret-based Discrete Choice Modeling: A Tutorial , 2012 .

[7]  David A. Hensher,et al.  Contrasts of Relative Advantage Maximisation with Random Utility Maximisation and Regret Minimisation , 2015 .

[8]  C. Chorus,et al.  Random Regret-Based Discrete-Choice Modelling: An Application to Healthcare , 2013, PharmacoEconomics.

[9]  Brad M. Barber,et al.  Once Burned, Twice Shy: How Naive Learning, Counterfactuals, and Regret Affect the Repurchase of Stocks Previously Sold , 2011 .

[10]  H. Oppewal,et al.  Experimental analysis of consumer channel-mix use , 2013 .

[11]  Simon P. Anderson,et al.  Reverse discrete choice models , 1999 .

[12]  Michel Bierlaire,et al.  Travel choice models that generate preferences for compromise alternatives: An empirical comparison , 2013 .

[13]  Tammo H. A. Bijmolt,et al.  Incorporating Context Effects into a Choice Model , 2010 .

[14]  Joffre Swait,et al.  The Akaike Likelihood Ratio Index , 1986, Transp. Sci..

[15]  Oded Netzer,et al.  Alternative Models for Capturing the Compromise Effect , 2004 .

[16]  Andrew Daly,et al.  Allowing for heterogeneous decision rules in discrete choice models: an approach and four case studies , 2011 .

[17]  Stephane Hess,et al.  Contrasts Between Utility Maximization and Regret Minimization in the Presence of Opt Out Alternatives , 2014 .

[18]  C. Chorus.  A New Model of Random Regret Minimization , 2010, European Journal of Transport and Infrastructure Research.

[19]  K. Arrow.  A Difficulty in the Concept of Social Welfare , 1950, Journal of Political Economy.

[20]  C. Prato.  Estimating Random Regret Minimization models in the route choice context , 2012 .

[21]  David E. Bell,et al.  Regret in Decision Making under Uncertainty , 1982, Oper. Res..

[22]  Carlo G. Prato,et al.  Expanding the applicability of random regret minimization for route choice analysis , 2014 .

[23]  Caspar G. Chorus,et al.  Logsums for utility-maximizers and regret-minimizers, and their relation with desirability and satisfaction , 2012 .

[24]  Marcel Zeelenberg,et al.  A Theory of Regret Regulation 1.0 , 2007 .

[25]  Hjp Harry Timmermans,et al.  Mother logit analysis of substitution effects in consumer shopping destination choice , 1991 .

[26]  Marcel Zeelenberg,et al.  The use of crying over spilled milk: a note on the rationality and functionality of regret , 1999 .

[27]  W. Greene,et al.  Random regret minimization or random utility maximization: An exploratory analysis in the context of automobile fuel choice , 2013 .

[28]  Alberto Longo,et al.  Site choices in recreational demand: a matter of utility maximization or regret minimization? , 2012 .

[29]  J. Dyer,et al.  A Generalized Utility Model of Disappointment and Regret Effects on Post-Choice Valuation , 1997 .

[30]  Shlomo Bekhor,et al.  Eliciting and estimating reservation price: A semi-compensatory approach , 2011 .

[31]  Caspar G. Chorus,et al.  Stated choices and benefit estimates in the context of traffic calming schemes: utility maximization, regret minimization, or both? , 2014 .

[32]  Mark D. Uncles,et al.  Discrete Choice Analysis: Theory and Application to Travel Demand , 1987 .

[33]  J. Hey,et al.  INVESTIGATING GENERALIZATIONS OF EXPECTED UTILITY THEORY USING EXPERIMENTAL DATA , 1994, Experiments in Economics.

[34]  Carlo Giacomo Prato,et al.  The application of the random regret minimization model to drivers' choice of crash avoidance maneuvers , 2012 .

[35]  I. Simonson,et al.  THE INFLUENCE OF ANTICIPATING REGRET AND RESPONSIBILITY ON PURCHASE DECISIONS , 1992 .

[36]  John M. Rose,et al.  Regret Minimization or Utility Maximization: It Depends on the Attribute , 2013 .

[37]  T. Arentze,et al.  A Random Regret-Minimization model of travel choice , 2008 .

[38]  P. Fishburn.  Transitive measurable utility , 1983 .

[39]  Jianmin Jia,et al.  Regret and performance uncertainty in consumer repeat choice , 2012 .

[40]  Caspar G. Chorus,et al.  Modeling politicians' preferences for road pricing policies: A regret-based and utilitarian perspective , 2011 .

[41]  John Quiggin,et al.  Regret theory with general choice sets , 1994 .

[42]  Just moseying around and happening upon it versus a master plan: Minimizing regret in impulse versus planned sales promotion purchases , 2006 .

[43]  Alberto Longo,et al.  The role of regret minimisation in lifestyle choices affecting the risk of coronary heart disease. , 2013, Journal of health economics.

[44]  J. Louviere,et al.  Seeing the forest despite the trees: Brand effects on choice uncertainty , 2012 .

[45]  K. Sælensminde,et al.  Causes and consequences of lexicographic choices in stated choice studies , 2006 .

[46]  B. Skiera,et al.  Measurement of Consumer Preferences for Bucket Pricing Plans with Different Service Attributes , 2011 .

[47]  Michel Bierlaire,et al.  An empirical comparison of travel choice models that capture preferences for compromise alternatives , 2013 .

[48]  K. Lancaster.  A New Approach to Consumer Theory , 1966, Journal of Political Economy.

[49]  Stephane Hess,et al.  A mixed random utility — Random regret model linking the choice of decision rule to latent character traits , 2013 .

[50]  Paula M. Karnick.  Seeing the Forest Through the Trees , 2012, Nursing science quarterly.

[51]  A. Tversky,et al.  Context-dependent preferences , 1993 .

[52]  D. McFadden.  Conditional logit analysis of qualitative choice behavior , 1972 .

[53]  Chris D. Orme,et al.  Investigating Generalisations of Expected Utility Theory Using Experimental Data , 1994 .

[54]  Caspar G. Chorus,et al.  Consumer preferences for alternative fuel vehicles: Comparing a utility maximization and a regret minimization model , 2013 .

[55]  P. Fishburn.  Nontransitive measurable utility , 1982 .

[56]  R. Sugden,et al.  Regret Theory: An alternative theory of rational choice under uncertainty Review of Economic Studies , 1982 .

[57]  Pierre Volle.  The short-term effect of store-level promotions on store choice, and the moderating role of individual variables , 2001 .

[58]  K. Taylor,et al.  A Regret Theory Approach to Assessing Consumer Satisfaction , 1997 .

[59]  Han Bleichrodt,et al.  A Quantitative Measurement of Regret Theory , 2010, Manag. Sci..

[60]  Peter Boatwright,et al.  A Satisficing Choice Model , 2012, Mark. Sci..

[61]  John M. Rose,et al.  Vehicle purchasing behaviour of individuals and groups: regret or reward? , 2013 .

[62]  A. Tversky.  Elimination by aspects: A theory of choice. , 1972 .

[63]  J. O'Doherty,et al.  Regret and its avoidance: a neuroimaging study of choice behavior , 2005, Nature Neuroscience.