A Simple Method to Estimate the Roles of Learning, Inventories and Category Consideration in Consumer Choice

28 Pages Posted: 15 Jun 2014 Last revised: 10 Mar 2015

See all articles by Andrew T. Ching

Andrew T. Ching

Johns Hopkins University - Carey Business School

Tulin Erdem

New York University (NYU) - Leonard N. Stern School of Business; New York University (NYU) - Department of Marketing

Michael P. Keane

University of New South Wales

Date Written: October 13, 2014

Abstract

Models of consumer learning and inventory behavior have both proven to be valuable for explaining consumer choice dynamics. In their pure form these models assume consumers solve complex dynamic programming (DP) problems to determine optimal choices. For this reason, these models are best viewed as “as if” approximations to consumer behavior. In this paper we present an estimation method, based on Geweke and Keane (2000), which allows us to estimate dynamic models without solving a DP problem and without strong assumptions about how consumers form expectations about the future. The relatively low computational burden of this method allows us to nest the learning and inventory models. We also incorporate the “price consideration” mechanism of Ching, Erdem and Keane (2009), which essentially says that consumers may not pay attention to a category in every period. The resulting model may be viewed as providing a more “realistic” or “descriptive” account of consumer choice behavior.

Keywords: consumer learning, stockpiling, inventory, category consideration, discrete choice, forward-looking behavior

JEL Classification: C33, C35, C61, C81, D12, D81, D91

Suggested Citation

Ching, Andrew T. and Erdem, Tulin and Keane, Michael P., A Simple Method to Estimate the Roles of Learning, Inventories and Category Consideration in Consumer Choice (October 13, 2014). Rotman School of Management Working Paper No. 2450679, Available at SSRN: https://ssrn.com/abstract=2450679 or http://dx.doi.org/10.2139/ssrn.2450679

Andrew T. Ching (Contact Author)

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

Tulin Erdem

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

New York University (NYU) - Department of Marketing ( email )

Henry Kaufman Ctr
44 W 4 St.
New York, NY
United States

Michael P. Keane

University of New South Wales ( email )

Sydney, NSW
Australia

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