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Modeling Loss Aversion and Reference Dependence Effects on Brand Choice
Open accessAbstract
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 work has been supported by analyses of real world data that show similar behavior in, among other situations, stock markets (26–28), the pricing and purchasing of consumables (29, 30) and condominiums (31), and the choice of work hours by cabdrivers (32).”
From Thinking like a trader selectively reduces individuals' loss aversion (2009) · cites this paper as [30]
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Consumer Choice between Hedonic and Utilitarian Goods
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How Critical are Critical Reviews? The Box Office Effects of Film Critics, Star Power, and Budgets
Basuroy, S., Chatterjee, S., & Ravid, S. A. (2003) · Journal of Marketing · doi:10.1509/jmkg.67.4.103.18692 · Cited by 935
“…literature (De Silva 1998; De Vany and Walls 1999; Holbrook 1999; Levin, Levin, and Heath 1997; Litman 1983; Litman and Ahn 1998; Litman and Kohl 1989; Neelamegham and Chintagunta 1999; Prag and Casavant 1994; Ravid 1999; Smith and Smith 1986; Sochay 1994; Wallace, Seigerman, and Holbrook 1993).”
Background
Metadata
- Authors
- Hardie, B. G. S., Johnson, E. J., & Fader, P. S.
- Affiliations
- London Business School (GB)
- Columbia University (US)
- University of Pennsylvania (US)
- Venue
- Marketing Science
- Published
- 1993-11
- Volume
- 12
- Issue
- 4
- Pages
- 378-394
- ISSN
- 0732-2399 (ISSN-L)
- 1526-548X
- 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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