Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96542
Authors: 
Muthukrishnan, A. V.
Wathieu, Luc
Year of Publication: 
2007
Series/Report no.: 
ESMT Working Paper 07-005
Abstract: 
This paper investigates situations where a sizeable sub-set of consumers prefer an inferior (dominated) offer made by an established brand to a superior (dominating) offer made by a less-established brand. Established brands are those for which consumers hold more confident beliefs concerning overall quality. Through a series of eight experiments, we test the hypothesis that the preference for a dominated established brand is linked to ambiguity aversion, a seemingly unrelated pattern of choice behavior between monetary gambles. We first show a correlation between ambiguity aversion and the preference for dominated established brands. We then demonstrate that the preference for established brands is enhanced when ambiguity aversion is made more salient in unrelated preceding choices. To further study the ambiguity-reducing properties of established brands, the last experiments assign brand names to monetary gambles, and it appears that (a priori unrelated) established brand names increase the likelihood of choosing ambiguous gambles. Overall, this research argues that brand equity for longstanding brands derives (at least in part) from consumers' tendency to avoid ambiguity.
Subjects: 
branding
brand choice
consumer behavior
decision making under uncertainty
JEL: 
C91
D10
D80
M31
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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