Ambiguity Aversion and the Power of Established Brands

28 Pages Posted: 20 Dec 2007 Last revised: 11 Jun 2014

See all articles by A. V. Muthukrishnan

A. V. Muthukrishnan

Hong Kong University of Science & Technology (HKUST) - Department of Marketing

Luc Wathieu

Georgetown University McDonough School of Business

Date Written: November 29, 2007

Abstract

This paper investigates situations where a sizable sub-set of consumers prefer an inferior (dominated) offer made by an established brand to a superior (dominating) offer made by a less-established brand. Established brands are those for which consumers hold more confident beliefs concerning overall quality. Through a series of eight experiments, we test the hypothesis that the preference for a dominated established brand is linked to ambiguity aversion, a seemingly unrelated pattern of choice behavior between monetary gambles. We first show a correlation between ambiguity aversion and the preference for dominated established brands. We then demonstrate that the preference for established brands is enhanced when ambiguity aversion is made more salient in unrelated preceding choices. To further study the ambiguity-reducing properties of established brands, the last experiments assign brand names to monetary gambles, and it appears that (a priori unrelated) established brand names increase the likelihood of choosing ambiguous gambles. Overall, this research argues that brand equity for longstanding brands derives (at least in part) from consumers' tendency to avoid ambiguity.

Keywords: branding, brand choice, consumer behavior, decision making under uncertainty

JEL Classification: C91, D10, D80, M31

Suggested Citation

Muthukrishnan, A. V. and Wathieu, Luc, Ambiguity Aversion and the Power of Established Brands (November 29, 2007). ESMT Working Paper No. 07-005, Georgetown McDonough School of Business Research Paper No. 1072909, Available at SSRN: https://ssrn.com/abstract=1072909 or http://dx.doi.org/10.2139/ssrn.1072909

A. V. Muthukrishnan (Contact Author)

Hong Kong University of Science & Technology (HKUST) - Department of Marketing ( email )

Department of Marketing
Clear Water Bay, Kowloon
Hong Kong
+852 2358 7715 (Phone)
+852 2358 2429 (Fax)

Luc Wathieu

Georgetown University McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

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