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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“This issue has elicited much theoretical and empirical support for this phenomenon (e.g. Allenby and Rossi, 1991; Hardie et al., 1993; Sethuraman, 1995; Sivakumar and Raj, 1997).”
Background

Authors: Hardie, B. G. S., Johnson, E. J., & Fader, P. S.
Affiliations: London Business School (GB)
Columbia University (US)
University of Pennsylvania (US)
ORCID: Hardie, Bruce G. S.
Johnson, Eric J.
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: green
papers.ssrn.com
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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Modeling Loss Aversion and Reference Dependence Effects on Brand Choice

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