Towards a brain-to-society systems model of individual choice

Canonical models of rational choice fail to account for many forms of motivated adaptive behaviors, specifically in domains such as food selections. To describe behavior in such emotion- and reward-laden scenarios, researchers have proposed dual-process models that posit competition between a slower, analytic faculty and a fast, impulsive, emotional faculty. In this paper, we examine the assumptions and limitations of these approaches to modeling motivated choice. We argue that models of this form, though intuitively attractive, are biologically implausible. We describe an approach to motivated choice based on sequential sampling process models that can form a solid theoretical bridge between what is known about brain function and environmental influences upon choice. We further suggest that the complex and dynamic relationships between biology, behavior, and environment affecting choice at the individual level must inform aggregate models of consumer choice. Models using agent-based complex systems may further provide a principled way to relate individual and aggregate consumer choices to the aggregate choices made by businesses and social institutions. We coin the term “brain-to-society systems” choice model for this broad integrative approach.     

Decision Neuroscience

This article presents an introduction to and analysis of an emerging area of research, namely decision neuroscience, whose goal is to integrate research in neuroscience and behavioral decision making. The article includes an exposition of (1) how the exponential accumulation of knowledge in neuroscience can potentially enrich research on decision making, (2) the range of techniques in neuroscience that can be used to shed light on various decision making phenomena, (3) examples of potential research in this emerging area, and (4) some of the challenges readers need to be cognizant of while venturing into this new area of research. The genesis of this workshop session and article was a meeting that Dipankar Chakravarti, Antoine Bechara, and Baba Shiv had one balmy Iowa City summer afternoon in 2003. We coined the term Decision Neuroscience to describe the emerging stream of research outlined in this article.     

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Quantitative Marketing and Economics -     

Balancing Profitability and Customer Welfare in a Supermarket Chain

We investigate the impact of price discrimination by a large Chicago supermarket chain. First we measure the impact of the chain's current zone-pricing policy on shelf prices, variable profits and consumer welfare across its stores. Using the chain's database to simulate a finer store-specific micro-pricing policy, we study the implications of this policy on profits and welfare. We show how a store-pricing policy that is constrained to offer consumers at least as much surplus as a uniform chain wide pricing policy still enables the retailer to generate substantial incremental profits.To ensure our pricing problem exhibits a well-defined optimum, we use the parsimonious, mixed-logit demand function that allows for flexible substitution patterns across brands and also retains a link to consumer theory. We discuss the issue of price endogeneity when estimating the demand parameters with weekly store-level data. Standard instrumental variables techniques used to account for such endogeneity also seem to increase the magnitudes of own-price elasticities thereby offsetting the problem encountered by previous researchers of predicted prices from a demand model exceeding those in the actual data.     

The role of pleasant music in servicescapes: A test of the dual model of environmental perception

This article explores the psychological processes by which background music in servicescapes influences service evaluation and purchase intention. Drawing on the dual model of environmental perception, it is hypothesized that: (1) servicescape is perceived in an ambient holistic manner and serves as the background for perceptions of the provider and thereby has direct and provider-mediated effects on outcomes; (2) the presence of music influences outcomes because it reinforces the holistic quality of the servicescape, makes the provider stand out, and moderates the contribution of provider-mediated servicescape effects; (3) when pleasant music is present, a double-mediating process fully accounts for the impact of variations in the music valence, such that music valence gets transferred into servicescape attitude, which then exercises direct and provider-mediated effects on service outcomes. Two experimental studies in real and online environments support the above research hypotheses.     

Recent Advances in Structural Econometric Modeling: Dynamics, Product Positioning and Entry

In the empirical analysis of consumer markets, recent literature has begun to explore the dynamics in both consumer decisions as well as in firms' marketing policies. Other research has begun to explore the strategic aspects of product line design in a competitive environment. In both cases, structural models have given us new insights into consumer and firm behavior. For example, incorporating consumer and firm dynamics may help explain patterns in our data that are not well-captured by static models. Similarly, the strategic aspects of firm entry and product-positioning may be intrinsically linked to firm conduct and the intensity of competition in a market. Structural analysis of these consumer and firm decisions raise a number of substantial computational challenges. We discuss the computational challenges as well as specific empirical applications. The discussions are based on the session “Structural Models of Strategic Choice” from the 2004 Choice Symposium.     

The effect of a similarity versus dissimilarity focus in positioning strategy: The moderating role of consumer familiarity and product category

Results of three studies show that the effectiveness of positioning strategies based on similarity and dissimilarity vis‐à‐vis other brands or with respect to the product category as a whole is moderated by the degree of familiarity of the consumer with the objects of comparison (Study 1) and by the degree of imageability and concreteness of the memory representation of the product category (Studies 2 and 3). Perceptual judgments appear to be more responsive to similarity and dissimilarity positioning either when consumers are more familiar or when product categories allow consumers to form clear, concrete memory representations. Study 3 shows that such effects are due to a shift in the relative proportion of common and distinctive features made salient under similarity and dissimilarity instructions. Methodological and practical implications are discussed. © 1999 John Wiley & Sons, Inc.     

Structural Applications of the Discrete Choice Model

A growing body of empirical literature uses structurally-derived economic models to study the nature of competition and to measure explicitly the economic impact of strategic policies. While several approaches have been proposed, the discrete choice demand system has experienced wide usage. The heterogeneous, or mixed, logit in particular has been widely applied due to its parsimonious structure and its ability to capture flexibly substitution patterns for a large number of differentiated products.We outline the derivation of the heterogeneous logit demand system. We then present a number of applications of such models to various data sources. Finally, we conclude with a discussion of directions for future research in this area.     

The effects of background music on consumers' desire to affiliate in buyer-seller interactions

The effect of music-induced pleasure and arousal on consumers' desire to affiliate in buyer-seller interactions were investigated in the context of bank services. Background music was manipulated using classical music extracts pretested to vary in pleasure (low, moderate, and high) and arousal (low, moderate, and high) according to the Affect Grid (Russell, Weiss, & Mendelsohn, 1989). Independent and interactive effects of music-induced pleasure and arousal on consumers' desire to affiliate were found. Higher desire to affiliate was associated with more pleasure and more arousal; pleasure had a stronger positive impact under low and high arousal than under a moderate level, and arousal had a stronger effect under low and high pleasure compared to moderate level. Theoretical and practical implications of the results are provided. © 1995 John Wiley & Sons, Inc.