Investigating Consumer Choice Processes for Experience Goods: An Econometric Analysis

This research develops and executes an econometric framework to formally model and analyze the consumer choice processes for experience products. A multi-stage model is developed in the context of new movie choices. The modeling framework incorporates psychological variables such as consumer expectations of choice set elements, consumer product preferences and dispositions and influences of informational sources such as word of mouth within a discrete choice formulation. Model estimation allows for the relationship between different stages of the consumer choice process. An estimation procedure that explicitly accounts for measurement errors in the latent psychological variables is also developed. In particular, a probit measurement error model is proposed which provides unbiased parameter estimates. Data for the model estimation were obtained from laboratory experiment and a field study. The empirical results provide insights into the role of psychological variables (such as consumer expectations) in consumers’ choice decisions for movies and the formation of consumers’ post-consumption judgement and word of mouth. A validation exercise shows that model predictions are highly correlated with box office performance of the movies in the sample.