Truth beyond common beliefs

Date of publication: September 26, 2008

Company: IRIS Network

Author: Florian Bauer

Abstract:

The deduction of partial utilities within conjoint analyses is based on the assumption that people maximise their utility (homo oeconomicus). This assumption is contradicted by a broad swathe of empirical findings which have demonstrated that people systematically fail to make rational decisions. They nonetheless make predictable errors, so their decisions essentially remain calculable;. Consciously or unconsciously, they simply follow a decision rule that complements utility-maximising choice behaviour. In a first step, we were able to statistically model this sub-optimal choice behaviour, and in a second step we combined both algorithms the classic utility-maximising choice model and its sub-optimal counterpart ; within one Multi Rule Conjoint Analysis& (MRC) that adaptively models a respondent's behaviour on the basis of either of these choice models. Overcoming the narrow perspective of rational assumptions, MRC is able to improve predictions by more than 45% compared to standard CBC merely by more extensively exploiting an existing set of data.

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