Act similarity in case-based decision theory

Summary Case-Based Decision Theory (CBDT) postulates that decision making under uncertainty is based on analogies to past cases. In its original version, it suggests that each of the available acts is ranked according to its own performance in similar decision problems encountered in the past.The purpose of this paper is to extend CBDT to deal with cases in which the evaluation of an act may also depend on past performance of different, but similar acts. To this end we provide a behavioral axiomatic definition of the similarity function over problem-act pairs (and not over problem pairs alone, as in the original model).We propose a model in which preferences are context-dependent. For each conceivable history of outcomes (to be thought of as the context of decision) there is a preference order over acts. If these context-dependent preference relations satisfy our consistency-across-contexts axioms, there is an essentially unique similarity function that represents these preferences via the (generalized) CBDT functional.We are grateful to Akihiko Matsui for the discussions that motivated this work. We also thank Enriqueta Aragones, Roger Myerson, Zvika Neeman, Ariel Rubinstein, Peyton Young, and an anonymous referee for their comments. Partial financial support from the Alfred Sloan Foundation is gratefully acknowledged.     

Reaction to price changes and aspiration level adjustments

   Abstract. We claim that preferences of economic agents cannot be assumed given; rather, they are partly determined by the process of trade in the market, by information about the latter and so forth. In other words, preferences determine actions which, in turn, determine preferences. Thus classical tools of analysis such as the neo-classical utility function and the demand curve should be viewed merely as first approximations, which are too simplistic for many purposes. Changing preferences are not restricted to such phenomena as addiction, advertisement and so forth. Rather, for any product a satisficing consumer has an aspiration level, which is subject to change. The consumer's preferences, as reflected in choice behavior, will also change once the aspiration level is adjusted. We illustrate these claims by analyzing two examples concerning consumer reaction to price increases. We analyze the effect of aspiration level adjustments on the dynamic pattern of a single consumer's demand, and show that such adjustments generate predictions which do not conform to the neo-classical theory.     

Dynamics of inductive inference in a unified framework

We present a model of inductive inference that includes, as special cases, Bayesian reasoning, case-based reasoning, and rule-based reasoning. This unified framework allows us to examine how the various modes of inductive inference can be combined and how their relative weights change endogenously. For example, we establish conditions under which an agent who does not know the structure of the data generating process will decrease, over the course of her reasoning, the weight of credence put on Bayesian vs. non-Bayesian reasoning. We illustrate circumstances under which probabilistic models are used until an unexpected outcome occurs, whereupon the agent resorts to more basic reasoning techniques, such as case-based and rule-based reasoning, until enough data are gathered to formulate a new probabilistic model.     

Four generations of mall visitors in Israel: A study of mall activities,visiting patterns,and products purchased

The goal of the present project is to establish a division between generations as a basis for segmentation of mall visitors. Data were collected through a phone survey of 1120 respondents comprising a representative sample of the Israeli population. The study participants were asked about their mall visiting patterns, activities, and products purchased. Among the 1120 respondents, 725 reported having visited a shopping mall at least once during the last month. The study sample was divided into four generations: Veterans, Baby Boomers, Xers and Millennials. Significant differences were found between the four age cohorts: The Veterans appear to be the least-engaged mall shoppers, while the Millennials are the most enthusiastic about shopping malls, with Baby Boomers and Xers falling somewhere between these two cohorts. It is suggested that these differences derive from differences among members of these generations, born in different eras, and not only from their chronological ages. Theoretical and practical implications are discussed.     

ECONOMICS: BETWEEN PREDICTION AND CRITICISM

We suggest that one way in which economic analysis is useful is by offering a critique of reasoning. According to this view, economic theory may be useful not only by providing predictions, but also by pointing out weaknesses of arguments. It is argued that when a theory requires a nontrivial act of interpretation, its roles in producing predictions and offering critiques vary in a substantial way. We offer a formal model in which these different roles can be captured.     

The Role of Private Label Brands in Enhancing Service Satisfaction in the Hotel Industry: Comparing Luxury and Boutique Hotels

ABSTRACT

This research proposes private label branding as a strategy that can have a positive effect on guest satisfaction and loyalty in hotels that cater to travelers seeking a special hotel experience. We test this using a sample of guests in two hotels: a five-star luxury hotel (N = 225) and a boutique hotel (N = 101). Findings show that in the luxury hotel but not the boutique hotel, perception of a private label had a direct impact on loyalty, and an indirect impact on loyalty through its effect on guest satisfaction. The theoretical implications and recommendations for hoteliers based on the findings are discussed.     

Decision theory made relevant: Between the software and the shrink

Decision theory offers a formal approach to decision making, which is often viewed and taught as the rational way to approach managerial decisions. Half a century ago it generated high hopes of capturing and perhaps replacing intuition, and providing the “right” answer in practically all managerial situations. Today it seems fair to say that decision theory has not lived up to these expectations. Behavioral science provides ample evidence that managers fail to follow the dicta of decision theory, even when these are explained to them. As a result, executives often find decision theory frustrating and useless and prefer to rely on their intuition. This paper suggests that this extreme conclusion is unwarranted and calls for a re-appraisal of decision theory. We propose that it should not always be regarded as a mathematical tool that produces the answer; rather, it can be viewed as a framework for a dialog between the decision maker and the decision theorist. In one extreme, the decision theorist studies the problem and provides the “correct’’ answer. But in another, the decision theorist only challenges the decision maker's intuition and logic. In between, a whole gamut of possible dialogs exists, in which decision theory doesn't replace intuition, but supports and refines it.     

The cost (and the value) of customer attire: linking high- and low-end dress styles to service quality and prices offered by service employees

This study tests the impact of customer dress on the price of goods and services offered and on service quality. Mystery shoppers visited stores in three different business contexts. For each context, 30 mystery shoppers paid three visits each, once in sloppy, once in casual, and once in fashionable attire. Supporting research hypotheses, dress had conflicting effects on employees: customers wearing fashionable/casual clothing received better service than those dressed sloppily, while the latter were offered goods and services at lower prices. The findings imply that organizations should reconsider their customer discrimination policies, and engage customers in developing accepted dress codes.     

The complexity of the consumer problem

A literal interpretation of neo-classical consumer theory suggests that the consumer solves a very complex problem. In the presence of indivisible goods, the consumer problem is NP-Hard, and it appears unlikely that it can be optimally solved by a human. Two implications of this observation are that (i) households may imitate each other’s choices; (ii) households may adopt heuristics that give rise to the phenomenon of mental accounting.