Learning from Experience, Simply
Name
Learning from Experience Simply May 30 2014.pdf
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319.08 KB
Format
Adobe PDF
Checksum (MD5)
594edbcb8eca8bdd7127612a7fddbc58
Author(s)
Lin, Song
Zhang, Juanjuan
Hauser, John R.
Date Issued
September 2014
Journal
Marketing Science
Publisher
Institute for Operations Research and the Management Sciences (INFORMS)
Citation
Lin, Song, Juanjuan Zhang, and John R. Hauser. “Learning from Experience, Simply.” Marketing Science 34, no. 1 (January 2015): 1–19.
Version
Author's final manuscript
Abstract
There is substantial academic interest in modeling consumer experiential learning. However, (approximately) optimal solutions to forward-looking experiential learning problems are complex, limiting their behavioral plausibility and empirical feasibility. We propose that consumers use cognitively simple heuristic strategies. We explore one viable heuristic—index strategies—and demonstrate that they are intuitive, tractable, and plausible. Index strategies are much simpler for consumers to use but provide close-to-optimal utility. They also avoid exponential growth in computational complexity, enabling researchers to study learning models in more complex situations.
Well-defined index strategies depend on a structural property called indexability. We prove the indexability of a canonical forward-looking experiential learning model in which consumers learn brand quality while facing random utility shocks. Following an index strategy, consumers develop an index for each brand separately and choose the brand with the highest index. Using synthetic data, we demonstrate that an index strategy achieves nearly optimal utility at substantially lower computational costs. Using IRI data for diapers, we find that an index strategy performs as well as an approximately optimal solution and better than myopic learning. We extend the analysis to incorporate risk aversion, other cognitively simple heuristics, heterogeneous foresight, and an alternative specification of brands.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-Noncommercial-Share Alike
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1287/mksc.2014.0868
