Multiobjective consumer choice modelling based on depending-on-context preference

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

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