Consider or Choose? The Role and Power of Consideration Sets

78 Pages Posted: 10 Feb 2023 Last revised: 14 Jun 2024

See all articles by Yi-Chun Akchen

Yi-Chun Akchen

University College London - School of Management

Dmitry Mitrofanov

Boston College, Carroll School of Management

Date Written: February 8, 2023

Abstract

Consideration sets play a crucial role in discrete choice modeling, where customers are commonly assumed to go through a two-stage decision making process. Specifically, customers are assumed to form consideration sets in the first stage and then use a second-stage choice mechanism to pick the product with the highest utility from the consideration sets. Recent studies mostly aim to propose more powerful choice mechanisms based on advanced non-parametric models to improve prediction accuracy. In contrast, this paper takes a step back from exploring more complex second-stage choice mechanisms and instead focus on how effectively we can model customer choice relying only on the first-stage consideration set formation. To this end, we study a class of nonparametric choice models that is only specified by a distribution over consideration sets and has a bounded rationality interpretation. We denote it as the consideration set model. Intriguingly, we show that this class of choice models can be characterized by the axiom of symmetric demand cannibalization, which enables complete statistical identification. We further consider the model's downstream assortment planning as an application. We first present an exact description of the optimal assortment, proving that it is revenue-ordered based on the blocks defined by the consideration sets. Despite this compelling structure, we establish that the assortment optimization problem under this model is NP-hard even to approximate. This result shows that accounting for consideration sets in the model inevitably results in inapproximability in assortment planning, even though the consideration set model uses the simplest possible uniform secondstage choice mechanism. Finally, using a real-world dataset, we show that the consideration set model offers comparable prediction performance to other advanced choice models. Given the simplicity of the secondstage phase of the model, this result shows the tremendous power of the first-stage consideration sets when modeling customers' decision-making processes.

Keywords: discrete choice, consideration sets, symmetric cannibalization, assortment optimization, bounded rationality, identification

Suggested Citation

Akchen, Yi-Chun and Mitrofanov, Dmitry, Consider or Choose? The Role and Power of Consideration Sets (February 8, 2023). Available at SSRN: https://ssrn.com/abstract=4352043 or http://dx.doi.org/10.2139/ssrn.4352043

Yi-Chun Akchen (Contact Author)

University College London - School of Management ( email )

Gower Street
London, WC1E 6BT
United Kingdom

Dmitry Mitrofanov

Boston College, Carroll School of Management

257 Beacon Street
Chestnut Hill, MA 02467
United States

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