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Cited by 924Consumer Market Behavior and PricingDecision-Making and Behavioral EconomicsEconomic and Environmental Valuation

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Modeling Loss Aversion and Reference Dependence Effects on Brand Choice

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Hardie, Bruce G. S., Johnson, Eric J., Fader, Peter S.·1993·Marketing Science
DOI 10.1287/mksc.12.4.378
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Abstract

Based upon a recently developed multiattribute generalization of prospect theory's value function (Tversky and Kahneman 1991), we argue that consumer choice is influenced by the position of brands relative to multiattribute reference points, and that consumers weigh losses from a reference point more than equivalent sized gains (loss aversion). We sketch implications of this model for understanding brand choice. We develop a multinomial logit formulation of a reference-dependent choice model, calibrating it using scanner data. In addition to providing better fit in both estimation and forecast periods than a standard multinomial logit model, the model's coefficients demonstrate significant loss aversion, as hypothesized. We also discuss the implications of a reference-dependent view of consumer choice for modeling brand choice, demonstrate that loss aversion can account for asymmetric responses to changes in product characteristics, and examine other implications for competitive strategy.

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Metadata

Authors
Hardie, B. G. S., Johnson, E. J., & Fader, P. S.
Affiliations
  • London Business School (GB)
  • Columbia University (US)
  • University of Pennsylvania (US)
ORCID
Venue
Marketing Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Published
1993-11
Volume
12
Issue
4
Pages
378-394
ISSN
  • 0732-2399 (ISSN-L)
  • 1526-548X
DOI
10.1287/mksc.12.4.378
OpenAlex
W2074270109
Cited by
903
References
0
Citations by year
2026: 22 · 2025: 25 · 2024: 29 · 2023: 23 · 2022: 41 · 2021: 35 · 2020: 31 · 2019: 38 · 2018: 28 · 2017: 35 · 2016: 41 · 2015: 50 · 2014: 37 · 2013: 44 · 2012: 32
FWCI
38.60
Type
journal article
Language
en
Open access
Locations
  • Marketing Science (publishedVersion)
  • SSRN Electronic Journal (submittedVersion)
Topics
  • Social Sciences › Business, Management and Accounting › Marketing › Consumer Market Behavior and Pricing
  • Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
  • Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic and Environmental Valuation
Keywords
loss aversion, reference dependence, brand choice, prospect theory, multinomial logistic regression, scanner data, asymmetric price response, competitive strategy, consumer choice modeling

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