Modeling the Psychology of Consumer and Firm Behavior with Behavioral Economics

By Teck-Hua Ho, Noah Lim, Colin F. Camerer. Journal of Marketing Research, 2006

269 citations recorded by the source corpus.

Marketing is an applied science that tries to explain and influence how firms and consumers behave in markets. Marketing models are usually applications of standard economic theories, which rely on strong assumptions of rationality of consumers and firms. Behavioral economics explores the implications of the limits of rationality, with the goal of making economic theories more plausible by explaining and predicting behavior more accurately while maintaining formal power. This article reviews six behavioral economics models that are useful to marketing. Three models generalize standard preference structures to allow for sensitivity to reference points and loss aversion, social preferences toward outcomes of others, and preference for instant gratification. The other three models generalize the concept of game-theoretic equilibrium, allowing decision makers to make mistakes, encounter limits on the depth of strategic thinking, and equilibrate by learning from feedback. The authors also discuss a specific marketing application for each of these six models. The goal of this article is to encourage marketing researchers to apply these models. Doing so will raise technical challenges for modelers and will require thoughtful input from psychologists who study consumer behavior. Consequently, such models could create a common language both for modelers who prize formality and for psychologists who prize realism.

Subfields: General Decision Sciences, Marketing, Safety Research

View Paper: https://www.semanticscholar.org/paper/bcc107ef81ed57335bdc9138f48d67e644a2f573

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Citations in the corpus

Designing Price Contracts for Boundedly Rational Customers: Does the Number of Blocks Matter? (2007, methodology): “In using the QRE model and considering effects such as counterfactual profits in the retailer's utility, we are providing an example of how marketing researchers can model boundedly rational behavior in economic settings (Ho et al. 2006a, b).”
Free markets and fettered consumers (2006, background): “See also Bellemare et al (2005), Bosman (2005), Camerer (1999), Camerer and Thaler (1995), Green et al (1998), Ho et al (2005), Hurd et al (1998), Johansson-Stenman and Svedsater (2003).”
Social Preferences and Supply Chain Performance: An Experimental Study (2008, background): “The experimental results from these models extend the classic self-interested rationality concept (Camerer 1999, Ho et al. 2006) and provide evidence that social preferences may change behavior in economic environments, such as contract markets (e.g., Fehr et al. 1997, 1998).”
Designing Pricing Contracts for Boundedly Rational Customers: Does the Framing of the Fixed Fee Matter? (2008, background): “…the participation decision stage when the loss perceived from the fixed fee registers, and ask the retailer to simply 2 This approach shares the same spirit with a number of recent advances in behavioral economics (for a survey, see Camerer et al. 2003 and Ho et al. 2006). choose a retail price.”
INCREASING SAVING BEHAVIOR THROUGH AGE-PROGRESSED RENDERINGS OF THE FUTURE SELF (2011, background): “Two broad types of remedies aim to increase saving and reign in excessive discounting (for a review of other interventions in multiple domains, see Ho, Lim, and Camerer 2006).”
Signaling through Price and Quality to Consumers with Fairness Concerns (2016, background): “A comprehensive review of such literature is beyond the scope of this article; Goldfarb et al. (2012) and Ho, Lim, and Camerer (2006) offer more detailed reviews.”
Contemporary Guidance for Stated Preference Studies (2017, background): “Anomalies such as these are the essence of behavioral economics and an important determinant of how marketing affects consumer choices (DiClemente and Hantula 2003; Kahneman 2003; Ho, Lim, and Camerer 2006).”