Akchen, Yi-Chun;
Mitrofanov, Dmitry;
(2025)
Consider or Choose? The Role and Power of Consideration Sets.
Management Science
10.1287/mnsc.2023.00442.
(In press).
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Abstract
Consideration sets play a crucial role in discrete choice modeling, where customers often form consideration sets in the first stage and then use a second-stage choice mechanism to select the product with the highest utility. Although many recent studies aim to improve choice models by incorporating more sophisticated second-stage choice mechanisms, this paper takes a step back and goes into the opposite extreme. We simplify the second-stage choice mechanism to its most basic form and focus on modeling customer choice by emphasizing the role and power of the first-stage consideration set formation. To this end, we study a model that is parameterized solely by a distribution over consideration sets with a bounded rationality interpretation. Intriguingly, we show that this model is characterized by the axiom of symmetric demand cannibalization, enabling complete statistical identification. The latter finding highlights the critical role of consideration sets in the identifiability of two-stage choice models. We also examine the model’s implications for assortment planning, proving that the optimal assortment is revenue-ordered within each partition block created by consideration sets. Despite this compelling structure, we establish that the assortment problem under this model is NP-hard even to approximate, highlighting how consideration sets contribute to nontractability, even under the simplest uniform second-stage choice mechanism. Finally, using real-world data, we show that the model achieves prediction performance comparable to other advanced choice models. Given the simplicity of the model’s second-stage phase, this result showcases the enormous power of first-stage consideration set formation in capturing customers’ decision-making processes.
| Type: | Article |
|---|---|
| Title: | Consider or Choose? The Role and Power of Consideration Sets |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1287/mnsc.2023.00442 |
| Publisher version: | https://doi.org/10.1287/mnsc.2023.00442 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | discrete choice, consideration sets, symmetric cannibalization, assortment optimization, bounded rationality, identification |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10218717 |
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