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Title: Reference dependence and loss aversion in the evaluation of brands for choice set inclusion and for selection
Authors: Han, Sangman
Vanhonacker, Wilfried R.
Keywords: Brand choice
Reference dependence
Loss aversion
Choice set
Issue Date: Dec-1998
Series/Report no.: Marketing Working Paper Series ; MKTG 98.129
Abstract: The dynamic process by which a consumer arrives at a choice decision is generally believed to be a process during which the formation of a choice set precedes the selection of a brand. This research looks at the role of multiattribute reference points in the evaluation of brands for choice set inclusion and for final selection. We conceptualize the creation of a choice set as following either a top-down or a bottom-up approach and reference dependence as confined to the brand evaluations underlying the "tough" decisions (i.e., the choice-set-formation decisions when the choice set is created following a top-down approach, and the brand-selection decision when the choice set is created following a bottom-up approach). With a unique data set, we find empirical support for a bottom-up choice-set-formation process based entirely on absolute attribute evaluations, followed by a brand-selection process based on relative brand evaluations that exhibit loss aversion. Accordingly, multiattribute reference points and asymmetry in evaluating losses versus gains only arise once self-imposed constraints in cognitive processing have been used to identify the choice set. Implications of these results are discussed.
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