Regulatory Focus and Decision Rules: Are Promotion-Focused Consumers Utility Maximizers and Prevention-Focused Consumers Regret Minimizers?

30 Pages Posted: 14 Jul 2017

See all articles by Jooyoung Lim

Jooyoung Lim

Korea Advanced Institute of Science and Technology (KAIST), College of Business, Students

Minhi Hahn

KAIST College of Business

Date Written: July 1, 2017

Abstract

This study aims to investigate the potential consumer-specific driver for decision rules between utility maximization or regret minimization in discrete choice modeling to gain a better understanding of consumers’ decision process, while introducing the random regret minimization (RRM) model in marketing to examine consumer choices. Drawing upon regulatory focus theory, we posit that promotion-focused consumers, who are inclined to maximize their opportunities, are more likely to be utility maximizers while prevention-focused consumers, who are inclined to minimize negative outcomes, are more likely to be regret minimizers. Using a finite mixture discrete choice model of utility-maximizing and regret-minimizing behavioral classes, we confirm our hypotheses with an online choice-based conjoint experiment data on US consumers. Our empirical findings further suggest that, while the RRM alone can perform as well as the conventional multinomial logit, it is important to incorporate structural heterogeneity to gain additional insights on consumer preference and the market structure.

Keywords: Anticipated Regret, Regulatory Focus, Discrete Choice Model, Heterogeneous Decision Rule, Random Regret Minimization, Random Utility Maximization

Suggested Citation

Lim, Jooyoung and Hahn, Minhi, Regulatory Focus and Decision Rules: Are Promotion-Focused Consumers Utility Maximizers and Prevention-Focused Consumers Regret Minimizers? (July 1, 2017). KAIST College of Business Working Paper Series No. 2017-011, Available at SSRN: https://ssrn.com/abstract=3002187 or http://dx.doi.org/10.2139/ssrn.3002187

Jooyoung Lim

Korea Advanced Institute of Science and Technology (KAIST), College of Business, Students ( email )

85 Hoegiro, Dongdaemoon-gu
Seoul
Korea, Republic of (South Korea)

Minhi Hahn (Contact Author)

KAIST College of Business ( email )

Korea, Republic of (South Korea)

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