Assortment Optimization Under Consider-Then-Choose Choice Models

56 Pages Posted: 23 Jan 2020

See all articles by Ali Aouad

Ali Aouad

London Business School

Vivek F. Farias

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Retsef Levi

MIT Sloan School of Management - Operations Research Center

Date Written: June 15, 2015

Abstract

Consider-then-choose models, borne out by empirical literature in marketing and psychology, explain that customers choose among alternatives in two phases, by first screening products to decide which alternatives to consider, before then ranking them. In this paper, we develop a dynamic programming framework to study the computational aspects of assortment optimization models posited on consider-then-choose premises. Although ranking-based choice models generally lead to computationally intractable assortment optimization problems, we are able to show that for many practical and empirically vetted assumptions on how customers consider and choose, the resulting dynamic program is efficient. Our approach unifies and subsumes several specialized settings analyzed in previous literature. Empirically, we demonstrate the versatility and predictive power of our modeling approach on a combination of synthetic and real industry datasets, where prediction errors are significantly reduced against common parametric choice models. In synthetic experiments, our algorithms lead to practical computation schemes that outperform a state-of-the-art integer programming solver in terms of running time, in several parameter regimes of interest.

Keywords: Assortment optimization, dynamic programming, choice models, consider-then-choose

Suggested Citation

Aouad, Ali and Farias, Vivek F. and Levi, Retsef, Assortment Optimization Under Consider-Then-Choose Choice Models (June 15, 2015). Available at SSRN: https://ssrn.com/abstract=2618823 or http://dx.doi.org/10.2139/ssrn.2618823

Ali Aouad (Contact Author)

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Vivek F. Farias

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Retsef Levi

MIT Sloan School of Management - Operations Research Center ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

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