Korean Management Science Review (경영과학)

The Korean Operations Research and Management Science Society (한국경영과학회)
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An Investigation on the Effect of Utility Variance on Choice Probability without Assumptions on the Specific Forms of Probability Distributions

특정한 확률분포를 가정하지 않는 경우에 효용의 분산이 제품선택확률에 미치는 영향에 대한 연구

  • 원지성 (동덕여자대학교 경영학과)
  • Received : 2010.07.28
  • Accepted : 2011.02.22
  • Published : 2011.03.31
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Abstract

The theory of random utility maximization (RUM) defines the probability of an alternative being chosen as the probability of its utility being perceived as higher than those of all the other competing alternatives in the choice set (Marschak 1960). According to this theory, consumers perceive the utility of an alternative not as a constant but as a probability distribution. Over the last two decades, there have been an increasing number of studies on the effect of utility variance on choice probability. The common result of the previous studies is that as the utility variance increases, the effect of the mean value of the utility (the deterministic component of the utility) on choice probability is reduced. This study provides a theoretical investigation on the effect of utility variance on choice probability without any assumptions on the specific forms of probability distributions. This study suggests that without assumptions of the probability distribution functions, firms cannot apply the marketing strategy of maximizing choice probability (or market share), but can only adopt the strategy of maximizing the minimum or maximum value of the expected choice probability. This study applies the Chebyshef inequality and shows how the changes in utility variances affect the maximum of minimum of choice probabilities and provides managerial implications.

Keywords

References

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