Assortment Optimization Under Consider-Then-Choose Choice Models

Ali Aouad (), Vivek Farias () and Retsef Levi ()
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Ali Aouad: London Business School, London NW1 4SA, United Kingdom
Vivek Farias: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139
Retsef Levi: Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139

Management Science, 2021, vol. 67, issue 6, 3368-3386

Abstract: Consider-then-choose models, borne out by empirical literature in marketing and psychology, explain that customers choose among alternatives in two phases, by first screening products to decide which alternatives to consider and then ranking them. In this paper, we develop a dynamic programming framework to study the computational aspects of assortment optimization under consider-then-choose premises. Although nonparametric choice models generally lead to computationally intractable assortment optimization problems, we are able to show that for many empirically vetted assumptions on how customers consider and choose, our resulting dynamic program is efficient. Our approach unifies and subsumes several specialized settings analyzed in previous literature. Empirically, we demonstrate the predictive power of our modeling approach on a combination of synthetic and real industry data sets, where prediction errors are significantly reduced against common parametric choice models. In synthetic experiments, our algorithms lead to practical computation schemes that outperform a state-of-the-art integer programming solver in terms of running time, in several parameter regimes of interest.

Keywords: assortment planning; choice models; dynamic programming; consider-then-choose (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:67:y:2021:i:6:p:3368-3386

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