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Multi-Objective Consumer Choice Modeling Based on Contextual Preferences

This presentation by Evgenij Ozhegov discusses advances in consumer choice modeling, focusing on multi-objective problems influenced by context-dependent preferences. It outlines various consumer choice models, including individual and aggregated demand models, single and multi-criteria models, static and dynamic approaches, and rational versus non-rational preferences. Key issues such as the Giffen effect in consumer behavior and empirical analysis are explored. The talk highlights the need to adapt choice models to account for external factors, temporal changes, and varying criteria weights, enhancing understanding of consumer decision-making.

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Multi-Objective Consumer Choice Modeling Based on Contextual Preferences

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  1. Multiobjective consumer choice modelling based on depending-on-contextpreference Presentingauthor: EvgenijOzhegov NRU HSE - Perm Dept. ofAppliedmathematicsandsocialsystemmodelling MCDM 2011, 14.06.2011

  2. Outline • Generalizationoftheknowledgeaboutrecentconsumerchoicemodellingapproaches; • Considerationofparticularmodels; • Formulatingofthemultiobjectiveproblemofconsumerchoice; • Empiricalissueofusingsuchmodel.

  3. Structureofconsumerchoicemodels • Bythenumberofconsumersmodelsaredividedon: • Individualdemandmodels • Aggregateddemandmodels • Intermsoftimefactor: • Staticmodels • Dynamicmodels • Bythenumberofconsumerchoicecriteria: • Singlecriterionmodels • Multicriteriamodels • Bythehomogeneityoftheproducts: • Modelswithhomogeneousproducts • Modelswithheterogeneousproducts

  4. Classicalrationaldemand • ) – setofconsumerproducts, where – amountofconsumedproducti. • meansthatbetter (stronglypreffered) than • - notworse (weaklypreffered) • - equvivalent • Rationalstrongpreferencecoherent, antireflexive, transitive, asimmetric. • Weakpreference reflexive, coherent, transitive.

  5. Classicalrationaldemand • The utilityfunctionintroducedasthefunctionwhich: • . • ConsumerchoiceproblemischoosingthemostpreferedsetforeachbudgetconstraintB, definedbythepairas • – budgetconstraint • – ClassicalMarshalliandemand

  6. Whythismodelcannotbeused? Because ofthenon-rationalpreferences! Thereare: • Problemswithequvivalence (lackofknowledgeaboutthealternatives); • Problemswithtransitiveness (cupofteawith1 mgofsugar cup of tea with2 mg of sugar … cup ofteawith20 g ofsugar, butnotcupofteawith 1 mgofsugar cup of tea with20 g of sugar); • Dependenceofthepreferencesoncontext (fashion, externalconditions); • Dependenceonthequestionpreposition[Canheman, Tversky, 1979]; • Dependenceofthepreferencesonthetime.

  7. Particularmodels (2) Usingofthegeneralizedutilityfunction [Shafer, 1974]; (5) Usingofthediscountedutilityintheproblemofintertemporalchoice (Exponential, hyperbolicaldiscounting) [Shane, Loewenstein, O'Donoghue, 2002]; (3) Modelsof price setting for new product (innovators - followers) [Bass, 1989]; (3) MAUT (multiattributiveutilitytheory) - dividing the utility of product on attributes[Dyer, 2005]; (3) Using of the preference which is depended on context [Ozhegov, 2010]: – externalfactorsandif that and then

  8. Multicriteriaconsumerchoiceproblem (*) • – productset • – utilitycriteria

  9. Solutionconceptusingthemethodofcriteriaweighting Ifthanthek-thcriterionismoreimportantthanthel-th. Thentheproblem(*)willbe:

  10. Howtousethatmodel? • Whyindifferentcontextweseedifferentbehavior (exceptfordifferent<p,I>)? • Becauseofthedifferentweightsofthecriteriaduringthetime!

  11. Dynamicalcase (**) • – productset, – i-th productconsumptiondensityinthet timemoment; • – utilitycriteria; • ; • – weightofj-thcriterionimportancedependingonthecontext);

  12. Dynamicalcase (**) • I – consumerexpenditurefortheperiod; • [0..T] – timeinterval; • – weightedutilitycriterion; • ; • – budgetconstraint.

  13. Fixingtheconsumtioneffects • Consumptioneffectisconstantlyobserveddependenceoftheutilityofsomeproductontheexternalfactors. • Howcanwefixtheexistenceofthateffectanditsfunctionalform? • Denotethatproductas and willbeallothergoods(a quantity that characterizes the change in amountof the consumer basket, with the exception of the investigated product). • - j-th criterionparametersvector

  14. Fixingtheconsumptioneffects • foreacht • Denoteasthevalueofrelativeimportanceofthecriteriawhichdescribestheinvestigatedeffect • willbethefixedrelativeimportanceofothercriteria

  15. Empiricalissue: Giffeneffecttobuckwheat • Thepricesforthebuckwheatrosefrom 45 rublesperkgto 140 insummer 2010; • TherewasunreasonablyhighdemandforthebuckwheatundertheGiffeneffect; • Thesamplecontained 888 observationsoftheconsumersfrom 25.04.2010 to 13.08.2010 (111 days, 8 randomconsumersineachday) inbigretailstore; • Knowntheamountofbuckwheatbought, thepricefor 1 kg, expenditureandtheweightedpricelevelforeachproductset.

  16. Empiricalissue: Giffeneffecttobuckwheat • At eachtimeteachconsumerperforms a consumptionofproductsetwhichisclosetooptimal • Wheremistheamountofcriteriawhichhetakesinaccount

  17. Empiricalissue: Giffeneffecttobuckwheat • ; • Numberofestimatedparamsforeachm is6m+2; • Estimatedbythemethodofmaximumlikelihood; • Thebestmodelwiththeminimum AIK comparedwithbestmodelwithoutcriterionwith

  18. Thebestmodel: 2 criteria Importance of Priceforbuckwheat

  19. Thebestmodel: predictingpower Priceforbuckwheat

  20. Thankyoufortheattention! Yourquestions

  21. References • Бусыгин В.П., Желободько Е.В., Цыплаков А.А. Микроэкономика – третий уровень. Новосибирск: Новосибирский государственный университет, 2003. • Ожегов Е.М.. Моделирование потребительского выбора нетранзитивными предпочтениями, Сборник материалов XIII Международной научно-практической конференции «Актуальные вопросы экономических наук», Новосибирск, 2010, c. 36-40. • Подиновский В.В. Анализ и поддержка решений. Введение в теорию важности критериев в многокритериальных задачах принятия решений, Москва, Физматлит, 2007. • В. В. Подиновский, В. Д. Ногин. Парето-оптимальные решения многокритериальных задач, Москва, ФИЗМАТЛИТ, 2007. • Ariel Rubinstein: Lecture Notes in Microeconomic Theory, Princeton University Press, 2006 • Frederick Shane, George Loewenstein and Ted O'Donoghue. Time Discounting and Time Preference: A Critical Review. Journal of Economic Literature. Vol. 40, No. 2, 2002, pp. 351-401. • Frank M. Bass, A New Product Growth for Model Consumer Durables, Management Science, Vol. 15, No. 5, 1989, pp. 215-227. • James Dyer. Multiple Criteria Decision Analysis: State of the Art Surveys, International Series in Operations Research & Management Science, 2005, Volume 78, IV, 265-292. • W. J. Shafer. The Nontransitive Consumer, Econometrica 42, 1974: 913–919.

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