Decomposing the utility of complex alternatives from mental representations of decisions

We introduce a utility theory-based model of consumers’ mental representation of attributes and benefits in decisions between complex alternatives. The model relies on the fact that there arecognitive costs and gains to activating additional decision components in mental representations.The gains are that with every component the individual is better able to discriminate between choice alternatives and the probability of making the best choice increases. The costs are the additional mental effort that is required to evaluate the decision components. We propose that a component is activated in a mental representation only if the expected gains of doing so exceed the mental costs of the evaluation. This proposition is formalized in a utility model where adecision component is cognitively activated if the utility variation caused by the component’s levels exceeds a mental cost threshold. This model allows us to decompose the utility of alternatives from mental representations of decisions without the need to observe choices. We illustrate the proposed approach using data on 594 individuals’ mental representations of a hypothetical shopping decision problem.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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