Predicting Volatile Consumer Markets Using Multi-Agent Methods: Theory and Validation

In Simulation in Computational Finance and Economics: Tools and Emerging Applications, ed. Biliana Alexandrova-Kabadjova, Serafin Martinez-Jaramillo, Alma Lilia Garcia-Al, 2012

19 Pages Posted: 6 Dec 2014 Last revised: 25 Mar 2017

See all articles by Abhijit Sengupta

Abhijit Sengupta

Surrey Business School, University of Surrey

Stephen E. Glavin

University College London

Date Written: 2012

Abstract

A behavioral model incorporating utility based rational choice enhanced with psychological drivers is presented to study a consumer goods market, characterized by repeat purchase incidences by households. The psychological drivers incorporate purchase strategies of loyalty and change-of-pace, which affect the choice set of consumer agents in an agent based simulation environment. Agent specific memories of past purchases drive these strategies, while attribute specific preferences and prices drive the utility based choice function. Transactions data from a category in a supermarket is used to initialize, calibrate and test the accuracy of predictions of the model. Results indicate that prediction accuracy at both macro and micro levels can be significantly improved with the incorporation of purchase strategies. Moreover, increasing the memory length beyond a certain limit does not improve predictions in the model, indicating that consumer memory of past shopping instances is finite and low and recent purchase history is more relevant to current decision making than the distant past.

Keywords: Consumer Loyalty, Change of Pace, Memory, Validation, Consumer Packaged Goods

Suggested Citation

Sengupta, Abhijit and Glavin, Stephen E., Predicting Volatile Consumer Markets Using Multi-Agent Methods: Theory and Validation (2012). In Simulation in Computational Finance and Economics: Tools and Emerging Applications, ed. Biliana Alexandrova-Kabadjova, Serafin Martinez-Jaramillo, Alma Lilia Garcia-Al, 2012, Available at SSRN: https://ssrn.com/abstract=2533958

Abhijit Sengupta (Contact Author)

Surrey Business School, University of Surrey ( email )

Guildford, Surrey GU2 7XH
United Kingdom

Stephen E. Glavin

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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