Role of Forgetting in Memory-Based Choice Decisions: A Structural Model |
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Authors: | Mehta Nitin Rajiv Surendra Srinivasan Kannan |
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Institution: | (1) Rotman School of Management, University of Toronto, Canada;(2) Graduate School of Business, National University of Singapore, Singapore;(3) Graduate School of Industrial Administration, Carnegie Mellon University, United States |
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Abstract: | We propose a structural model to investigate the impact of forgetting on consumers' brand choice decisions in frequently purchased
products. Forgetting results in consumers imperfectly recalling their prior brand evaluations when making a purchase decision
in the category. We conceptualize the imperfect recall by positing that consumers recall their prior evaluations with noise.
Based on prior research in the behavioral area, we characterize the extent of forgetting as an increasing and concave function
of time. Our framework generates analytical results on the impact of forgetting on consumers' brand evaluations and their
consequent purchase behavior. We calibrate our model using scanner panel data for liquid detergents. Furthermore, we obtain
insights into the consumers' extent of forgetting in the category, extent of learning, predicted price elasticities and implications
on state dependence and habit persistence. Our results underscore the importance of modeling consumers' ability to recall
only imperfectly. |
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Keywords: | Bayesian learning forgetting quality uncertainty structural modeling econometric estimation and memory-based choice decisions |
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