A behavioral option value model of consumer product set choice

Consumers often purchase products for future use when the utility of these products in the future is still uncertain. One way to accommodate this uncertainty, is for firms to offer choice flexibility by allowing consumers to initially choose a set of products from which they can choose a single product in the future. Such flexibility creates option value for consumers because they can benefit from the utility information that is revealed in the future. This paper develops a formal utility model for consumers’ behavioral valuation of this option value of product sets. It proposes a new three-stage method that combines choice experiment-based decision elicitation and econometric modeling to estimate consumers’ behavioral option value. The results of four experiments provide empirical support for the proposed components of the consumer product set option value model. They show that consumers do indeed take into account option value when selecting product sets from which to choose an alternative in the future. They also show that, behaviorally, consumers overweigh option value and apply decision weights in their evaluations of uncertain future outcomes. The paper concludes with theoretical and practical implications of the new behavioral option value model and the empirical findings.