Preference Learning and Demand Forecast

Marketing Science, forthcoming

42 Pages Posted: 19 Aug 2019 Last revised: 15 May 2020

See all articles by Xinyu Cao

Xinyu Cao

New York University (NYU) - Leonard N. Stern School of Business

Juanjuan Zhang

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: August 2, 2019

Abstract

Understanding consumer preferences is important for new product management, but is famously challenging in the absence of actual sales data. Stated-preferences data are relatively cheap but unreliable, whereas revealed-preferences data through actual choices are reliable but expensive to obtain prior to product launch. We develop a cost-effective solution. We argue that people do not automatically know their preferences, but can make an effort to acquire such knowledge when given sufficient incentives. The method we develop regulates people's preference-learning incentives using a single parameter, realization probability, meaning the probability with which an individual has to actually purchase the product she says she is willing to buy. We derive a theoretical relationship between realization probability and elicited preferences. This allows us to forecast demand in real purchase settings using inexpensive choice data with small to moderate realization probabilities. Data from a large-scale field experiment support the theory, and demonstrate the predictive validity and cost-effectiveness of the proposed method.

Keywords: preference elicitation, demand forecasting, incentive alignment, choice experiment, field experiment, external validity

Suggested Citation

Cao, Xinyu and Zhang, Juanjuan, Preference Learning and Demand Forecast (August 2, 2019). Marketing Science, forthcoming, Available at SSRN: https://ssrn.com/abstract=3437986 or http://dx.doi.org/10.2139/ssrn.3437986

Xinyu Cao (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Juanjuan Zhang

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Cambridge, MA 02142
United States

HOME PAGE: http://jjzhang.scripts.mit.edu

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
379
Abstract Views
1,416
rank
102,342
PlumX Metrics