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Economic Models of Choice

In: Handbook of Marketing Decision Models

Author

Listed:
  • Greg M. Allenby

    (Ohio State University)

  • Jaehwan Kim

    (Korea University Business School)

  • Peter E. Rossi

    (UCLA)

Abstract

This chapter provides an introduction to choice models based on the principle of direct utilityDirect utility maximization. Models of direct utility are characterized by specifications of the utility function and accompanying budget constraintBudget constraint that allows separation of what is gained (i.e., utility) from that which is given up in an exchange. Direct utility maximization rationalizes observed choice as arising from goal-oriented consumers who are resource constrained. Marketing data overwhelmingly reflects goal-oriented behavior on the part of consumers in the high rate of zero’s present in disaggregate data, indicating that most people choose to not purchase most products that are available. By developing alternative models of direct utilityDirect utility maximization, we hope to spur additional research on utility formation and a more in-depth understanding of optimal firm reaction to the demands and constraints of consumers.

Suggested Citation

  • Greg M. Allenby & Jaehwan Kim & Peter E. Rossi, 2017. "Economic Models of Choice," International Series in Operations Research & Management Science, in: Berend Wierenga & Ralf van der Lans (ed.), Handbook of Marketing Decision Models, edition 2, chapter 0, pages 199-222, Springer.
    • Handle: RePEc:spr:isochp:978-3-319-56941-3_7
    DOI: 10.1007/978-3-319-56941-3_7
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    Cited by:

    1. Xavier Fernández-i-Marín & Carolin H Rapp & Christian Adam & Oliver James & Anita Manatschal, 2021. "Discrimination against mobile European Union citizens before and during the first COVID-19 lockdown: Evidence from a conjoint experiment in Germany," European Union Politics, , vol. 22(4), pages 741-761, December.
    2. Ernan Haruvy & Peter Popkowski Leszczyc & Greg Allenby & Russell Belk & Catherine Eckel & Robert Fisher & Sherry Xin Li & John A. List & Yu Ma & Yu Wang, 2020. "Fundraising design: key issues, unifying framework, and open puzzles," Marketing Letters, Springer, vol. 31(4), pages 371-380, December.
    3. Kim, Chul & Smith, Adam N. & Kim, Jaehwan & Allenby, Greg M., 2023. "Outside good utility and substitution patterns in direct utility models," Journal of choice modelling, Elsevier, vol. 49(C).

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