Formal Choice Models in Marketing

The paper gives an overview and evaluates the theoretical traditions underlying choice models that are used in marketing. In particular, the emphasis of this essay is on the underlying assumptions, limitations and empirical demands of these choice models. Four fundamental choice models are used as a basis to analyze this complex field; the neoclassical economic theory as extended by Lancaster, the Risk-Preference Theory of Choices under uncertainty, the Strict Utility Theory and the Random Utility Theory. These four choice models and their extensions are compared and contrasted along the three critical steps in the model building process: theory generation, parameterization and estimation.