Ambiguity aversion and the power of established brands

A. V. Muthukrishnan and Luc Wathieu
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A. V. Muthukrishnan: Hong Kong University of Science and Technology
Luc Wathieu: ESMT European School of Management and Technology

No ESMT-07-005, ESMT Research Working Papers from ESMT European School of Management and Technology

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.

Keywords: branding; brand choice; consumer behavior; decision making under uncertainty (search for similar items in EconPapers)
JEL-codes: C91 D10 D80 M31 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2007-11-29
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-mkt and nep-upt
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Published in Management Science 55(12): 1993-1941.

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