Statistical Benefits of Choices from Subsets

43 Pages Posted: 21 Jun 2008 Last revised: 18 Dec 2008

See all articles by Robert Zeithammer

Robert Zeithammer

University of California, Los Angeles (UCLA) - Anderson School of Management

Peter Lenk

University of Michigan; University of Michigan, Stephen M. Ross School of Business

Date Written: August 1, 2008

Abstract

Marketers often analyze multinomial choice from a set of branded products to learn about demand. Given a set of brands to study, we analyze three reasons why choices from strict subsets of the brands can contain more statistical information about demand than choices from all the brands in the study. First, making choices from smaller subsets is easier, so it is possible to use more choice-tasks when the choice data comes from a choice-based conjoint questionnaire. Second, choices from subsets of brands better identify and more accurately estimate the covariance structure of unobserved utility shocks associated with brands. Third, subsets automatically balance the brand-shares when some of the brands are less popular than others. We demonstrate these three "benefits of subsets" using a mixture of analytical results and numerical simulations, and provide implications for the design of choice-based conjoint analyses. We find that the optimal subset-size depends on the model, the number of brands in the study, and the designer's resource constraint. Besides showing that subsets can be beneficial, we also provide a simulation methodology that helps designers pick the best subset-size for their setting.

Keywords: discrete choice, logit, probit, conjoint, choice, choice-set, subset

JEL Classification: C25, C91, M31

Suggested Citation

Zeithammer, Robert and Lenk, Peter and Lenk, Peter, Statistical Benefits of Choices from Subsets (August 1, 2008). Available at SSRN: https://ssrn.com/abstract=1147828 or http://dx.doi.org/10.2139/ssrn.1147828

Robert Zeithammer (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Peter Lenk

University of Michigan, Stephen M. Ross School of Business ( email )

701 Tappan Street
Ann Arbor, MI MI 48109
United States

University of Michigan ( email )

701 Tappan St
Ann Arbor, MI 48109-1234
United States
+1 734 936-2619 (Phone)

HOME PAGE: http://webuser.bus.umich.edu/plenk/index.htm

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