I4C focuses its research efforts in three main areas:
- Choice-based policy evaluation and welfare analysis
- Choice processes and econometric models of choice behaviour
- Choice elicitation and preference measurement
To further these research areas, the Institute uses and develops tools from econometrics, mathematics/statistics, marketing and psychology to build models of consumer and corporate decision making behaviour.
Choice-based policy evaluation and welfare analysis
Setting government policy and firm decisions in today’s Australian and global economy require understanding the behaviour of agents (consumers, firms, institutions):
- Where do they reside, where do they work, where do they purchase?
- What technology adoption decisions will they make?
- What is their willingness to forego current consumption versus saving for the future?
- What infrastructure investments are needed to build a knowledge-based economy?
- What is Australians’ willingness to pay for health services?
- What is the value of statistical life?
The list goes on, but this already serves to illustrate the wide range of policy-relevant topics that I4C has or can address through choice-based evaluation methods and formal welfare analytic methods.
Choice processes and econometric models of choice behaviour
Currently, there are two exciting areas that I4C is working in to push the frontiers of choice research outwards: antecedent volition and group decision making.
Antecedent volition (AV) refers to higher-level decision processes that direct evaluative and selection processes; these include such diverse phenomena as what goals to activate and pursue, what information to use, what products to eliminate and what decision rule(s) to employ to support identification of the preferred alternative in a decision instance. The notion of antecedent volition has yet to be widely incorporated into the study of consumer choice, so I4C is pursuing a program of research to propose and test augmentations of existing models of consumer choice with these prior stages to selection.
The extant theoretical perspective underlying consumer choice models has consistently been the one drawn from microeconomic theory: the decision maker is utility maximizing and fully rational, has access to and makes use of all relevant information concerning alternative goods, considers all possible substitutes/goods indefatigably, and observes a known budget constraint. However, each of these assumptions about human decision makers can be called into question, sometimes very generally, sometimes in more restrictive conditions. A somewhat broader and more useful conceptualization of decision makers (DMs) is that they are adaptive problem solvers that routinely handle complex decisions, but they do so by managing their time, money and cognitive resources. The core concept of AV is that complexity gives rise to higher-level optimization behaviour that reflects DMs resource allocations that lead to efficient means to make specific decisions. Ultimately, DMs decide how to efficiently make a good decision.
Choice elicitation and preference measurement
Historically, the Institute has been actively involved in the conceptualization and testing of new methods of choice (and more generally, preference) measurement. What are today widely accepted methods in choice modelling were developed and/or tested early on by members of I4C. These continue to be active research areas, as can be ascertained through an examination of the choice modelling literatures in transport, marketing and health.
- Stated Preference (SP) methods owe much of their widespread impact to the work of Jordan Louviere, founder of the Institute. He, David Hensher (U Sydney) and Joffre Swait (co-Director of I4C) published in 2000 their reference text Stated Choice Methods: Analysis and Applications in Marketing, Transportation and Environmental Valuation, Cambridge University Press. This is still an authoritative source on SP methods.
- Best/worst methods were also pioneered by Jordan Louviere, and are an active area of current research at the Institute. It is widely applied in our other research areas as an aid to attribute selection in discrete choice task design, as a robust method for scale development, as well as a method to complement and/or enhance choice-based measurements.
- The external validity of choice experiments is a well-established area of interest at the Institute. Hypothetical choices need to be grounded in market realities and predict well to market scenarios; this has been and will continue to be a guiding principle in the Institute’s research. Accordingly, we have done and are actively doing research to understand conditions under which choice experiments predict well to real-world contexts, as well as to understand what leads them to fail.