Advertisement

Decision making within a product network

  • Yusufcan Masatlioglu
  • Elchin SuleymanovEmail author
Research Article
  • 24 Downloads

Abstract

A product network comprises a vast number of goods which are linked to one another. This paper investigates decision making in this new environment by using revealed preference techniques. A decision maker will search within the network to uncover available goods. Due to the constraint imposed by the network structure and the starting point, the decision maker might not discover all available goods. We illustrate how one can deduce both the decision maker’s preference and her product network from observed behavior. We also consider an extension of the model where the decision maker might terminate the search before exhausting all the options (limited search).

Keywords

Product network Search Consideration set Reference-dependent choice Revealed preference 

JEL Classification

D11 D83 

Notes

Acknowledgements

We thank Martha Bailey, Tilman Börgers, Kfir Eliaz, Shaowei Ke, Heng Liu, Daisuke Nakajima, and Dmitriy Stolyarov for helpful comments. We also thank the Editor, Nicholas Yannelis, and two anonymous reviewers for their comments, which led to substantial improvements in the paper. Financial support from the National Science Foundation through Grant SES-1628883 is gratefully acknowledged.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

References

  1. Aaker, J.L.: Dimensions of brand personality. J. Mark. Res. 34(3), 347–356 (1997)Google Scholar
  2. Anderson, J.R.: A spreading activation theory of memory. J. Verbal Learn. Verbal Behav. 22(3), 261–295 (1983)Google Scholar
  3. Anderson, J.R., Bower, G.H.: Human Associative Memory. Psychology press, London (2014)Google Scholar
  4. Baker, W., Hutchinson, J., Moore, D., Nedungadi, P.: Brand familiarity and advertising: effects on the evoked set and brand preference. Adv. Consum. Res. 13, 637 (1986)Google Scholar
  5. Bernheim, B.D., Rangel, A.: Beyond revealed preference: choice-theoretic foundations for behavioral welfare economics. Q. J. Econ. 124(1), 51–104 (2009)Google Scholar
  6. Bronnenberg, B.J., Kim, J.B., Mela, C.F.: Zooming in on choice: how do consumers search for cameras online? Mark. Sci. 35(5), 693–712 (2016)Google Scholar
  7. Bucklin, R.E., Sismeiro, C.: A model of web site browsing behavior estimated on clickstream data. J. Mark. Res. 40(3), 249–267 (2003)Google Scholar
  8. Caplin, A., Dean, M.: Search, choice, and revealed preference. Theor. Econ. 6(1), 19–48 (2011)Google Scholar
  9. Chen, Y., Yao, S.: Sequential search with refinement: model and application with click-stream data. Manag. Sci. 63(12), 4345–4365 (2017)Google Scholar
  10. Cherepanov, V., Feddersen, T., Sandroni, A.: Rationalization. Theor. Econ. 8(3), 775–800 (2013)Google Scholar
  11. Collins, A.M., Loftus, E.F.: A spreading-activation theory of semantic processing. Psychol. Rev. 82(6), 407 (1975)Google Scholar
  12. Dean, M., Kıbrıs, Ö., Masatlioglu, Y.: Limited attention and status quo bias. J. Econ. Theory 169, 93–127 (2017)Google Scholar
  13. Garber, J.L.L.: The package appearance in choice. Adv. Consum. Res. 22, 653–660 (1995)Google Scholar
  14. Gentner, D., Stevens, A.L.: Mental Models. Psychology Press, London (2014)Google Scholar
  15. Goeree, M.S.: Limited information and advertising in the US personal computer industry. Econometrica 76(5), 1017–1074 (2008)Google Scholar
  16. Hoffman, D.L., Novak, T.P.: Marketing in hypermedia computer-mediated environments: conceptual foundations. J. Mark. 60(3), 50–68 (1996)Google Scholar
  17. Honka, E., Chintagunta, P.: Simultaneous or sequential? Search strategies in the US auto insurance industry. Mark. Sci. 36(1), 21–42 (2016)Google Scholar
  18. Hunt, R.R., Ellis, H.C.: Fundamentals of Cognitive Psychology. McGraw-Hill, New York (1999)Google Scholar
  19. Johnson, E.J., Moe, W.W., Fader, P.S., Bellman, S., Lohse, G.L.: On the depth and dynamics of online search behavior. Manag. Sci. 50(3), 299–308 (2004)Google Scholar
  20. Kahana, M.J.: Associative symmetry and memory theory. Mem. Cognit. 30(6), 823–840 (2002)Google Scholar
  21. Keane, M.T., O’Brien, M., Smyth, B.: Are people biased in their use of search engines? Commun. ACM 51(2), 49–52 (2008)Google Scholar
  22. Kim, J.B., Albuquerque, P., Bronnenberg, B.J.: Online demand under limited consumer search. Mark. Sci. 29(6), 1001–1023 (2010)Google Scholar
  23. Koulayev, S.: Estimating Demand in Online Search Markets, with Application to Hotel Bookings. Boston University, Boston (2010)Google Scholar
  24. Lleras, J.S., Masatlioglu, Y., Nakajima, D., Ozbay, E.Y.: When more is less: limited consideration. J. Econ. Theory 170, 70–85 (2017)Google Scholar
  25. Mandel, N., Johnson, E.J.: When web pages influence choice: effects of visual primes on experts and novices. J. Consum. Res. 29(2), 235–245 (2002)Google Scholar
  26. Manzini, P., Mariotti, M.: Sequentially rationalizable choice. Am. Econ. Rev. 97(5), 1824–1839 (2007)Google Scholar
  27. Manzini, P., Mariotti, M.: Categorize then choose: boundedly rational choice and welfare. J. Eur. Econ. Assoc. 10(5), 1141–1165 (2012)Google Scholar
  28. Masatlioglu, Y., Nakajima, D.: Choice by iterative search. Theor. Econ. 8(3), 701–728 (2013)Google Scholar
  29. Masatlioglu, Y., Ok, E.A.: Rational choice with status quo bias. J. Econ. Theory 121(1), 1–29 (2005)Google Scholar
  30. Masatlioglu, Y., Ok, E.A.: A canonical model of choice with initial endowments. Rev. Econ. Stud. 81(2), 851–883 (2014)Google Scholar
  31. Masatlioglu, Y., Nakajima, D., Ozbay, E.Y.: Revealed attention. Am. Econ. Rev. 102(5), 2183–2205 (2012)Google Scholar
  32. McCracken, J.C., Macklin, M.C.: The role of brand names and visual cues in enhancing memory for consumer packaged goods. Mark. Lett. 9(2), 209–226 (1998)Google Scholar
  33. Meyer, D.E., Schvaneveldt, R.W.: Meaning, memory structure, and mental processes. Science 192(4234), 27–33 (1976)Google Scholar
  34. Moe, W.W.: Buying, searching, or browsing: differentiating between online shoppers using in-store navigational clickstream. J. Consum. Psychol. 13(1), 29–39 (2003)Google Scholar
  35. Oestreicher-Singer, G., Sundararajan, A.: The visible hand? Demand effects of recommendation networks in electronic markets. Manag. Sci. 58(11), 1963–1981 (2012)Google Scholar
  36. Reutskaja, E., Nagel, R., Camerer, C.F., Rangel, A.: Search dynamics in consumer choice under time pressure: an eye-tracking study. Am. Econ. Rev. 101(2), 900–926 (2011)Google Scholar
  37. Salant, Y., Rubinstein, A.: (A, f): choice with frames. Rev. Econ. Stud. 75(4), 1287–1296 (2008)Google Scholar
  38. Sen, A.K.: Choice functions and revealed preference. Rev. Econ. Stud. 38(3), 307–317 (1971)Google Scholar
  39. Tversky, A., Kahneman, D.: Loss aversion in riskless choice: a reference-dependent model. Q. J. Econ. 106(4), 1039–1061 (1991)Google Scholar
  40. Tyson, C.J.: Behavioral implications of shortlisting procedures. Soc. Choice Welf. 41(4), 941–963 (2013)Google Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of MarylandCollege ParkUSA
  2. 2.Department of Economics, Krannert School of ManagementPurdue UniversityWest LafayetteUSA

Personalised recommendations