ELSEVIER Intern. J.

of Research in Macketing 12 (1995)39-54

What is the role of consideration sets in choice modeling?

Joel L. Horowitz a,., Jordan J. Louviere b
a Department of Economics, Unicersity of Iowa, Iowa City, IA 52242, USA.
b Department of Marketing, Faculty of Economics, Unicersity of Sydney, New South Wales 2006, Australia

Abstract

This p a p e r reports an empirical investigation of the role of consumer consideration sets in modeling consumers'
choices among discrete alternatives. Much of the marketing literature treats formation of a consideration set as the
first step in a two-step choice process. T h e second step of this process consists of choosing an alternative from the
consideration set. Only considered alternatives can he chosen. This p a p e r presents evidence that o p e r a t / o r ~
consideration sets are simply indicators of preferences. For the choice settings we investigate, choice need ~o~ he
modeled as a two-step process in which a consideration step precedes choice. Modeling choice this way may lead to a
misspecified model that makes erroneous forecasts. However, data on consumers' consideration sets can provide an
analyst with information about preferences that may he used to increase the efficiency with which the parameters of
a choice model are estimated.

Keywords: Random utili,~ model; Discrete choice; Choice set

1. Introduction Wright and Barbour (1977). Their def'm/fion is

This paper reports an empirical investigation
of the role of consumer consideration sets in
modeling consumers' choices among discrete al-
ternatives. The marketing literature on considera-
tion sets and related topics suggests that the
consideration set consists of the brands or prod-
ucts (alternatives more generally) among which a
consumer makes choices. This set need not coin-
cide with the set of all possible alternatives be-
cause some alternatives may not be considered.
The term "consideration set" we-s introduced by
" Corresponding author. Fax: (319) 335-1956; e-mail:
jhorowit@scout-po.hiz.uiowa.edu.
similar to the definitions of "evoked sets" (How-
ard and Sheth, 1969) and "acceptable brands'"
(Be!onax, 1979).
Much research (e.g., Narayana and Markham,
1975; Wright and Barbour, 1977; Bettman, 1979)
views consideration as part of a multistage pro-
cess leading to choice. See Shocker et aL (1991)
for a recent review ar..d discussion of research
issue,. For example, consideration sets may re-
flect the costs of acquiring and processing infor-
mation about alternative brands (Hauser and
Wernerfelt, 1990; Roberts and Lattin, 1991). T'aey
may also reflect exogenous constraints on choice
(Gaudry and Dagenais, 1979; Swait, 19~; Swait
and Ben-Aldva, 1987; Ratneshwar and Shocker,
1991). Support for the proposition that con-

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40 Z L. Horowitz, Jd. Lout,iere /Intern. J. o f Research in Marketing 12 (1995) 39-54
sumers do not consider all alternatives when
making choices has been given by Ratchford
(1980) and Shugan (1980). There is some evi-
dence that rest.tiering choice models to alterna-
t~'es that are considered improves predictions of
choice (Silk and Urban, 1978; Hauser and Gaskin,
1984; Gensch, !987).
The size and composition of consideration sets
have been investigated by Reilly and Parkinson
(1985), Narayana and Markham (1975), Brown
and Wfldt (1987), and Hauser and Werneffelt
(1990). Formal behavioral models of the forma-
tion of consideration sets have been proposed by
R o b e , s (1989), Roberts and Lattin (1991), Hauser
and Wernerfelt (1990) and Nedungadi (1987,
I990). Gensch (1987) proposed a model in which
the processes of choice set formation and choice
are simultaneous.
Hauser and Wernerfeit (1990) and Roberts
and Lmtin (1991) proposed utility-maximizing
models of consideration set formation for nomi-
nod product classes. Hauser and Werneffelt de-
veloped a model of consideration set formation
that represents a tradeoff between costs of think-
ing and information acquisition and the benefits
expected from finding the fight choice. They
•~ested their model on aggregate distributions of
consideration sets. Roberts and Lattin (1991) pro-
posed a shrfilar model and tested its implications
on individual-level consideration sets and product
chc;ces.
The use of consumer consideration sets in
choice modeling has largely been justified on the
grounds that including a consideration stage (1)
provides a more realistic representation of the
choice process, and (2) leads to improved fore-
casts and a better explanation of consumer be-
havior. However, in the absence of direct obser-
vations of choice processes, it is wise to remain
open-rnmded .,bout whether consideration sets
really exist. In this paper we present evidence
that standard operational indicators of considera-
'don provide no ................. ~ . . . . . . . . . . . . .
rained in the consumer's utiliW function and,
therefore, are reflections of preferences. For the
choice settings we invest/gate, choice need not be
modeled as a two-stage process in which a consid-
eration stage precedes choice. Indeed, modeling
choice using a consideration stage may lead to a
misspecified model that would provide erroneous
forecasts. However, when it is computationally
feasible to do so, information about consideration
sets can be used by the analyst to improve estima-
tion and prediction efficiency in a prope,rly speci-
fied choice model.
The remainder of the paper is organized as
follows. Section 2 describes the theoretical frame-
work of our approach. Section 3 describes the
data used in the empirical research. Section 4
presents the results of the empirical work. Sec-
tion 5 presents some implications of the empirical
results, and Section 6 presents the conclusions of
this research.
2. Theoretical foundation
In this paper, we consider two operational
definitions of consideration sets. The definitions
correspond to measurement using unaided
(evoked) and aided recall. They are:
Definition 1: The response to the request, "List
ail the brands [of a specified product] that you
would seriously consider buying and using your-
self."
Definition 2: The response to the request, "Check
the brands on the list below that you would
seriously consider buying and usinv yourself."
The objective of the research is to test the
following hypothesis about the relation of consid-
eration sets to preferences and choices under
each of the foregoing definitions of the consider-
ation set:
Main hypothesis: An individual's preferences
among the entire set of available alternatives can
be described by a utility function that determines
both the consideration set and the choice. The
utility of each alternative in the individual's con-
-
sideraiion set is greater than the utility of every
alternative not in this set.
According to the main hypothesis, preferences
exist without reference to the consideration set.
The consideration set provides information about
 J.L. Horowitz, ZZ Louviere / Intern. J, of Research in Marketing 12 (1995) 39-54
preferences and, therefore, utility. But under the
main hypothesis, formation of the set does not
represent a choice-modeling stage that is distinct
from the final choice. Moreover, the considera-
tion set provides no information that is not avail-
able from the utility function. In particular,
knowledge of the consideration set provides no
additional information for forecasting choice if
the utility function is known.
In practice, of course, individuals' utility func-
tions are not known to analysts. At best an ana-
lyst knows the systematic component of a random
utility function. Under the main hypothesis, an
analyst may be able to use knowledge of an
individual's consideration set to deduce informa-
tion about the random component of the utility
function and, thereby, to improve the precision of
forecasts. This point is discussed further in Sec-
tion 5.
We test the main hypothesis by (1) developing
choice models that represent this hypothesis and
several alternatives to it, (2) estimating the mod-
els empirically using data described ~n Section 3,
and (3) using the estimation results to test the
main hypothesis against the alternatives. The
models are derived in this section. The results of
estimating the models and testing the main hy-
pothesis against the alternatives are presented in
Section 4.
Z 1. The model of the main hypothesis
Let the set of all available alternatives consist
of the J elements A t . . . . . Aj. The models de-
scribed in this section can be developed for any
value of J > 1, but several are very complex alge-
braically if J is large. In the empirical part of this
paper, J = 4. Therefore, we also assume in this
section that J = 4 to minimize the complexity of
the algebra. Let J~ denote the number of alterna-
tives in the consideration set. If J = 4, 1 _<J¢ _<4.
Let xj denote a K x 1 vector of observed
attributes of alternative j, and let Ui(x) denote
the utility of alternative j to an individual. Fol-
lowing the standard approach of random utility
modeling, we assume that U~ can be written in
the form
vj = v ( x A +E~,
4t
where V is a function of the observed a t t r ~ t e s
(the systematic component of the uti|ity funcfiou)
and Ej is an unobserved random variable (the
random component of the utility functkm), if the
main hypothesis holds, the probability that an
individual chooses alternative A t is
P ( A t l x) = P[V(Xl) + El > V(xj) + E~
"¢j = 2 . . . . . 4]. (2)
We assume that the Ej are independendy and
identically distributed with the type i extrem¢
value distribution. Therefore, choice is described
by a muitinomial logit model (McFadden, 1974),
and
4
P(Atlx ) = [exp V ( x t ) ] / E [exp V(xj)]. (3)
j=l
P(A t) will be called the marginal probability of
choosing alternative 1, meaning that this p r ~ a -
bility does not use any information contained in
the consideration set.
Now suppose that the consideration set is ob-
served and has a single element. Under the main
hypothesis, this element is the chosen alternative.
Therefore, conditional on there bei~g only one
element in the consideration set, the joint proba-
bility of observing choice A~ and consideratma
set C t = {At) is
e ( A t , Cd L = l, x)
= e [ v ( x t ) +e, > Z(xj) +Ej v j = 2 . . . . . 41 .
(4)
In this special case the joint probability of the
choice and the consideration set is the same as
the marginal probability of the choice. Moreover,
the probability of observing choice A t and any
1-element consideration set other than Ca is zero.
Analogous equations apply to choices other than
A I•
Now let the consideration set have 2 e!ements.
Under the main hypothesis, one of these ele-
ments must be the chosen alternative. The other
element can be any of the non-chosen alterna-
tives. If we assume that E is independent of the
size of the consideration set, then conditionM on
(1) there being 2 elements in this set, the joint proba-
 42 ZL. Horowitz, Z.L Louviere/Intern. J. of Research in Marketing 12 (1995) 39-54

bility of observing choice A t and consideration x). The details of the derivation are given in the
set Cl, = {At, Az} is appendix. To present the results, let P(Afl Aj,
P(A~, CnX~'~= 2, x) A k . . . . , x) denote the multinomial logit probabil-
ity that A i is chosen when the choice set is {Ap
= P [ V ( x 0 +~, > V(xj) +~ A~ . . . . }. For example,
V j = 2 . . . . . 4 and P ( A I [ A l, A 2, A 3, x)
V ( x z ) + e z > V(xj) + e~ Vj = 3, 4]. (5) 3
= [e~ v ( x , ) ] / E [exp V(~j)].
The probab~ty of observing choice A t and a j=l
2-eiement consideration set that does not contain
A t is zero. AnMogous equations apply to other Then
combinations of the choice and consideration sets. P(A,, Cll Jc= I, x)
If the consideration set has 3 elements and the
main hypothesis holds, one of the elements must = P(A1, C~z3alYc= 4, x)
be the chosen alternative and the others can be =P(A,IA,, A 2, A 3, A4, x), (8)
any 2 non-chosen alternatives. Conditional on
P ( A , , C121Jr =2, x)
set, the joint probability of observing choice A, = P ( A I I A l, A 2, A 3, A 4, x)
and consideration set C~z3 = {At, A2, A3} is
×P(A21 a2, A3, .44, x), (9)
e(At, c,~IL = 3, ~)
and
= e [ V ( x , ) + ~t > V(x~) + ~i
P(AI, C,231J~= 3, x)
W = 2 . . . . . 4 and
= P ( A l l A I , A2, h 3 , a 4 , x )
V(x2) + E 2 > V(x4) +E4 and
X[P(A21A2, A3, A4, x)
v ( ~ ) +,~ > v ( x , ) + ~,]. (6)
x P ( A 3 I A 3, A4, X)
The probability of observing choice A t and a
3-eiement consideration set that does not contain + P ( A 3 ! A 2, A3, A4, X)
A~ is zero. Analogous eqaations apply to other XP(A21A2, ,44, x)]. (10)
combinations of the choice and consideration set.
Fina~y, suppose that the consideration set has The corresponding equations for other combina-
4 elements. Then all alternatives me contained in tions of the choice and considecation set can be
the consideration set, and the consideration set obtained from (8)-(10) by permuting subscripts.
provides no information about preferences. Con- To obtain an empirically estimable model from
ditiona! on there being 4 elements in the consid- (8)-(10), it is necessary to specify V(x i) up to a
eration set, the probability that A~ is chosen and finite-dimensional parameter that can be esti-
that the consideration set is C~234= {A~, A z, A 3, mated from data. We use the specification
A4} is V(x~) = ffxi, (11)
P(A,, C=,I L = 4, x) where ~6 is a K x 1 parameter vector. Under this
= P [ V ( x , ) +E, > V ( x j ) + Ei Yj = 2 . . . . . 4]. specification
(7) P ( A l, C,IJc = 1, x )
Analogous equations hold for other choices. = P ( A t , C,:e41Jc-- 4, x ) .
When the ej have the type I extreme value 4
distribution, it is possible to derive closed-form = exp(/3'xl) / Y'. exp(/3'xj), (12)
e_~:pressions for the joint probabilities P(A, C I J,, j=l
 ZL. Horowitz, J J , Louviere / Intern. Z of Research in Marketing 12 (1995) 39-54 43

P(A,, C,21Jc= 2 , x) The log-likelihood function is, therefore,

log L ' ( f l )
= e x p ( / 3 ' x , ) / E exp(13'x/ N
j=! = E log P[A(n), C(n), J~(n), x.,~]
n=l
N
ex e , (13) = g log t'[A(n), C(.)14(n), x . ]
n=l
n
and
+ Z log P [ 4 ( n ) , x . , ] . (I7)
e( & , cml 4 = 3, x) n=l
The first term on the fight-hand side of (17) is
= [exp(#'xt)/ ~=lexp(ffxj) ] determined by the structural model of (11)-(16).
The second term does net depend on the param-
eters /3 of the structural model since the main
X ( Z , + Z2), (14)
hypothesis does not specify how s'~. and x are
where generated. Therefore, the second term on the
[ * l right-hand side of (17) does not affect the e.~i-
Zt = [exp(ff x2)/i~=2exp(ff xj) l mate of/3, and maximum likelihood estLmad(m of
is equivalent to choosing/3 to maximize
N

×[exp(ffx3)/j~=3exP(/3'xj)], (15) log L ( / 3 ) = E log e[A(n), C(n)lJc(n), x.,~.

n=l
(is)
and
If the behavioral tht:~,~ included a structural
Z 2 = exp(ffx 3 exp 'x/ model for Jc(n),J~(n)
might depend on ~ throngll
the model. Making use of this relation wo,.gd
increase the precision with which/3 is esth-nated.
However, (18) is a valid log-likelihood function,
x exp(ffx2) / exp(ff~j . (16) for estimating /3 without a structural model for
k j,3 L(n).
Similar equations can be derived for other combi- Z2. Alternativemodels
nations of the choice and the consideration set. In this paper, the main hypothesis is te~ed by
The parameters /3 in the model of Eq. (11)- testing the model of (11)-(16) against three aRer-
(16) can be estimated by the method of mardmum native models. The alternative models and the
likelihood. To obtain the log-likeiihood function, test procedures used are described in this section.
let the estimation data consist of the observed
choices, consideration .sets, and explanatory vari- 2.2.I. A generalizationof (11)-(16)
ables of a random sample of N individuals. De- Eq. (11)-(16) specify the joint probability dis-
free A(n), C(n), Jc(n), and Xjn, respectively, to tribution of the chosen alternative and the con-
be the observed choice, consideration set, value sideration set. An alternative to this model is
of J~ and values of the explanatory variables sj given by (11)-(12) and
( j = 1. . . . . 4) for the nth sampled individual. Let P ( A 1 , C12! J c ~- 2, x)
x. n denote the entire set of variables x m (./=
1. . . . . 4). The probability of the observation [A(n), = [exp(ffx,)/j~ exp(/3'x~)]
C(n), Y,(n), X.n] is
e[ A(n), C(n), J,(n), x..] x exp(3,'xz)/ ~ exp('/x/) , (19)
=P[A(n), C(n)l J , ( n ) , x.,,]e[J~(,), x..]. i j=2 j
44 ZL. H~ro~qtz,J.Z Louviere/ Intern.J. of Researchin Marketing12 (1095139-54
and
P ( . % c, l =3,
= exp(/3%)](z,* +Zz*),
(20)
where
e|* [exp(y'xz)/~exp(y'x;)]/=2 ] implement this model, let the probability that
x exp(y ' x3 exp(y ' xj
[ j=3
Z 2. = e~ exf, T x j
-=
L
x exp(y'x2)/~e~(y'xj)
j,3
and y is a K × 1 vector of parameters. Under the
main hypothesis, y =/3, whereas y 4=/3 in general
ff the main hypothesis is false. Therefore, the
main hypothesis can be tested by testing the
hypothesis y =/3 with a likelihood ratio test. Let
log L~ denote the maximized value of the log-
l i k e f i h ~ l function (18). Let log L 2 denote the
m-,~finfized value of the log-likelihood function
that is obtained from (18) by replacing Eq. (13)-
(16) with (19)-(22). If y =/3, LR = 2(log L 2 -
log L~) has asymptotically the X 2 distribution
with K degrees of freedom. Therefore, the main
h$~thesis is rejected at the a level if LR ex-
ceeds the 1 - a quantiIe of the X 2 distribution
with K degrees of freedom.
2.ZZ An alternative model for generation of the
consideration set
Under the main hypothesis, the information
contained in the consideration set amounts to a
statement about preferences. Conditional on
preferences, the considerztion set does not re-
strict choice; the chosen :alternative is the one
m ~ t preferred among the entire set of available
alternatives, regardless of the consideration set.
An alternative hypothesis is that choice takes
place in two distinct stages. The first stage con-
sists of forming a consideration set. The second
stage consists of choosing an alternative from
those in the consideration set. This hypothesis is
consistent with the view of consideration sets
taken in the literature reviewed in Section 1.
One way to implement this alternative hypoth-
esis is through a model in which an alternative is
included in the consideration set if its utility
exceeds a threshold level and net otherwise. To
alternative Aj is in the consideration set of an
individual be
, (21)
Q(j[x~)=exp[-exp(--/3'x~+8)], (23)
where/3 is a vector of parameters, 6 is a scalar
parameter, and f i x / i s the systematic component
of the utility of alternative j. It follows from (23)
that the probability that the consideration set is
, (22) C is
1 etc,x) = lq e(jlx,) H [l- e(Jlx3l
jEC j~C
I
/ 1- H[1-O(ylxAl
I .
The chosen alternative is selected from the
(24)
consideration set using a utility function whose
systematic component is f i x but whose random
componer, t has a type I extreme value distribu-
tion independent of the random component of
the utility function used to select the considera-
tion set. The probability that alternative A l is
chosen conditional on the consideration set C is
P(A~I C, x) = exp(/3'x~)/ Y'. exp(ffxj),
j~c
A~ ~ C. (25)
P ( A 1[C, x) = 0 if A l ~ C. Combining (24) and
(25), the probability that alternative A~ is chosen
and that the consideration set is C is
P( A,, C I x) = P( C I x) exp(/3'x,)
/ ~ exp(ffxj), A , ~ C . (26)
j~c
Analogous equations apply to choices of other
alternatives. The parameters /3 and 8 can be
estimated by maximum likelihood.
 J.L. Horowi~z, J.L Louviere / Intern. J. of Research in bfarketing 12 (1995) 39-54
To compare (26) with the main hypothesis
model, it is necessary to derive from (26) the
probabilities of choice and the consideration set
conditional on Jc, the number of alternatives in
the consideration set. The result is
P(A,, CIJc, x) =P(CIJc, x) exp(/3'x,)
/ E exp(/Yxj),
where
e(clL, x)
= P(C[ x ) / E {1 [ J ( D ) = J~] P ( D I x)},
D test of whether the model with the smaller log
the sum in the denom.;nator of (27) is over all
non-empty subsets of the set of all available alter-
natives, J(D) is the number of alternatives in
subset D, and 1(-) = 1 if the statement in paren-
theses is true and zero otherwise.
The model of (27) is non-nestod with the model
implementing the main hypothesis ((11)-(16)).
Model (27) can be tested against the main hy-
pothesis by using a non-nested test proposed by
Horowitz (1983). This test is based on the obser-
vation that if a specified null-hypothesis model is
correct, it will have a larger log-likelihood than
will any alternative model, apart from effects of
random sampling error. The test determines
whether the log likelihood of the alternative
model exceeds that of the null-hypothesis m o d e l
by an amount that is too large to be explained by
random sampling error, in which case the null-hy-
pothesis model is rejected. Specifically, let log L t
denote the maximized value of the log-likelihood
function (18), and let log L 3 denote the maxi-
mized value of the log-likelihood function of the
model of (27). Let z be any positive number, and
let ~P denote the cumulative normal distribution
functi.,m. The test of Horowitz (1983) rejects (27)
in favor of the main hypothesis at a significance
level not exceeding ql~[-(2z) 1/2] if (log L I -
log L 3 + 1/2) > z. Thus, for example, model (27)
is rejected at a significance level not exceeding
0.05 if (log L~ - log L 3 + i / 2 ) > 1.35. The term
1 / 2 in the parentheses is a small-sample correc-
tion arising from the fact that model (27) has one
45
more parameter than the model for the main
hypothesis.
An important character~t~; of this test is that
it is valid only if the maintained or nul|-hyl~he-
sis model is specified independently of the data.
In the application reported here, tim rei~'a.~
null-hypothesis model is (27) since r ~ h a n of
(27) this model in favor of the main hypoth~is would
constitute evidence that the latter model p r o s
a more accurate description of the data than does
(27). It may seem tempting to specify the ml|bhy-
pothesis model as the one with the smaller m a ~
mized log-likelihood value, thereby achieving a
(28) likelihood is statistically significantly poorer ~,~han
the model with the larger log likelihood, in this
case, however, the null Iv~q~othesis is detenmL~d
by the estimation results, and the test
here is not valid.
ZZ£ A third alternative model
An third alternative model can be obtained by
forming a two-stage version of the main-hyl~he-
sis model. In this model, as in the main-h3q~the-
sis model, alternatives in the consideration set
arc ~referred to alternatives that are not in the
consideration set. In contrast to the main h y t ~ t b
esis model, however, the third alternative model
assumes that the random component of utility for
generating the consideration set is independent
of the random component of utility for cimoshag
an alternative from the consideration set. Thus,
in this model choice takes place in two stages. In
the first stage a consideration set is chosen so
that the alternatives in the set are preferred to
the alternatives that are not in the set. In the
second stage, an alternative is sele~ed from the
consideration set. Conditional on the explanatory
variables, the second-stage choice is i n d e p e n ~ n t
of the first-stage choice.
Let the notation A i > A i indicate that alterna-
tive i is preferred to alternative j. Then in the
third alternative model
P(A,, C,I Jc = 1, x)
=P(Ai[A L, A 2, .4 3, A4, X), (29)
46 ZL. Horowitz, Jd. Louviere /Intern. J. of Research in Marketing 12 (1995) 39-54
P ( A , , C,z[ L = 2 , x)
= P ( A , t A,. A 2, x ) [ P ( A , > A 2 > A 3 >A41 x)
+ P ( A z >A, > A 3 >A41 x ) ] , (30)
P ( A I , Cl~i Jc = 3, x)
= P( A.:t A l, A 2, A s, x)
x [ P ( A 1 >A 2 >A 3 >A4I x)
+ P ( A i > A 3 > A 2 >A4[ X)
+ P ( A z >Al >A3 >Aai x)
+ P ( A 2 > A s > A , >A41 x)
+ P ( A 3 >,41 >A z > A 4Ix)
+ P( A3 > Az > A, > A , I x ) ] , (31)
and
P ( A , , C,z.~.lJc=4, x)
= P ( A,! A,, A z, A s, A,,, x). (32)
The probabilities on the right-hand sides of (29)
and (32) and the probabilities outside the square
brackets in (30) and (31) are multinomial logit
models. The probabilities inside the square
brackets in (30) and (31) can be obtained using
methods for ordered lo#t models similar to those
outlined in the appendix.
Like the model of (27), the model of (29)-(32)
is non-nested with the model implementing the
main hypothesis and can be tested against the
m a l l hypothesis by using the test of Horowitz
(1983).
3. Data
To test the main hypothesis using the methods
of Section 4, it is necessary to have data consist-
ing of observations of consumers' choices among
different brands of a product, consumers' consid-
eration sets, and a~ributes of the brands that are
relevant to choice. We carried out separate tests
of the main hypothesis using choice among super-
markets for one set of tests and choice among
brands of toothpaste for the other. The use of
two distinct products adds to the generality of our
results regarding the validity of the main hypoth-
esis. In addition, the use of two products enables
us to investigate whether the correct definition of
"consideration set" differs among products.
We developed separate survey instruments to
measure choices of supermarkets and toothpaste,
consideration sets, and perceived product at-
tributes. Subjects were a convenience sample of
students, faculty, and staff at a major public uni-
versity. They were intercepted in an adjacent
shopping mall and offered a chance to win one of
three $50 prizes as an incentive to participate.
Because our research objectives are primarily
theoretical and methodological, the composition
of our sample is of less concern than its ability to
permit tests of the hypothesis. The sample sizes
for supermarkets and toothpaste were 109 and
124, respectively.
The two surveys were identical in structure
and consisted of 4 sections. Section 1 contained
sociodemographic questions. Section 2 began with
the unaided-recall consideration question (Defi-
nition 1 in this paper), which was placed at the
bottom of the first page of the questionnaire. The
aided-recall question (Definition 2 in this paper)
was at the top of page 2. Interviewers ensured
that subjects did not turn to page 2 before com-
pleting the unaided-recall question or turn back
to page 1 while answering the aided-recall one.
Section 3 contained questions about purchase
and usage of 7 different supermarkets and 7
brands of toothpaste. For purposes of testing the
main hypothesis, the chosen supermarket or brand
was defined as the one most recently patronized
or purchased.
Section 4 consisted of a univariate brand-by-
attribute scaling task. We used the "best-worst"
scaling approach of Finn arid Loaviere (1992),
which involves the creation of subsets of brands
using orthogonal, main-effects fractions of the 27
possible sets of brands of supermarkets. In the
present case, we used an 8-treatment, main-ef-
fects plan from the 27 to place the 7 brands into 7
subsets (one treatment is the null set). A subject's
task was to identify the "best" and "worst" brands
in each subset on a particular attribute dimension
such as "fluoride protection." Based on these
judgments, one can develop a "best minus worst"
difference scale for each subject and brand on
 ZL. Horowitz, Z / . Lout ~ere/ lntert~ Z of Research in Marketing 12 (1995) 39-54 47

each attribute dimension. The tot'q of "worsts"
(a maximum of 4) for each brand :,n a particular
attribute dimension is subtracted fiem the total
of "bests" (a maximum of 4) to yield a ¢iifference
scale. A difference of 0 indicates that a subject
judged a brand best as often as worst, whereas
positive numbers indicate that a brand was judged
best more often than worst and vice versa. Sub-
jects judged 7 brands on the attributes listed in
Table 1. The attributes were selected on the basis
of pilot interviews with convenience samples from
the same mall population. Finn and Louviere
(1992) have shown that best-worst difference
scales are linearly related to maximum likelihood
estimates of these scales based on a logit model
of a judgment task consisting of picking the two
brands that exhibit the largest perceptual differ-
ence on a specified dimension.
Testing the main hypothesis requires deriving
expressions for the probabilities of all possible
combinations of the chosen alternative and the
consideration set. The algebra involved in doing
this becomes increasingly cumbersome and
lengthy as the number of alternatives increases.
Therefore, we have used only 4 supermarkets and
4 brands of toothpaste in the formal analysis. The
supermarkets included a well-established national
chain with a large number of stores in the area
(Safeway), a well-established independent chain
(IGA), and 2 d~:scoun~: "superstores" (Food for
Less, which is owned by Safeway, and the g e a |
Superstore). These 4 "brands" of g o r e s ae.-
counted for 105 of the 109 choices in the sam#e.
The brands of toothpaste were Closeup, Colgaze,
Crest, and MacLean's. Together, they accoumed
for 114 of the observed choices. The forma| anal-
ysis was based on the subsamples of 105 and 114
individuals who chose one of the 4 brands of
supermarkets or toothpaste. Each ~ was
assigned consideration sets consisting of the gro-
cery stores or brands of toothpaste among the 4
main "brands" of each that the had'~fidua[ identi-
fied in response to the unaided and aided recaR
questions on the survey.
4. Results
Table i gives the definitions of the explanatory
variables of the empirical models for choice of
grocery store and toothpaste. Tables 2-3 ~how
the results of estimating the model for the main
hypothesis (equations (11)-(16)) and the three
alternative models (Eqs. (11)-(12) and (19)-(22)
for alternative 1, (27) for alternative 2, and (29)-
(32) for alternative 3). Each model was estimated
using both of the definitions of the consideration
set that are given in Section 2. Table 2 gives the

Table 1
Definitions o f variables
Variable Definition
Choice of grocery store
PRICE T o t a l t~rice o f f o o d o n scale o f - 4 to 4. - 4 = lowest, + 4 = highest.
SERVICE Service quality o n scale o f - 4 to 4. - 4 = worst, + 4 = best.
QUALITY M e r c h a n d i s e quality o n ~. .,.u. .¢. . .o~
. . - ,, ,v -,.~ ~ -- w o n t , + 4 = best.
CONVEN. S h o p p i n g c o n v e n i e n c e o n some o f - 4 to 4. - 4 = Ica.q c o n v e a i e n t , + 4 ffi m o s t convenient.
FFL DUMMY D u m m y variable e q u a l to 1 if the alternative is F o o d f o r Less a n d 0 otherwise.
IGA DUMMY D u m m y variable e q u a l to 1 if the alternath,e is I G A a n d 0 otherwise.
SFWY DUMMY D u m m y variable e q u a l t o I if t h e alternative is Safeway a n d 0 otherwise.
Choice of toothpaste
FLUOR Level o f fiuorid¢ p r o t e c t i o n o n scale o f - 4 to 4. - 4 = least, + 4 = most.
FRESH B r e a t h - f r e s h e n i n g p o w e r o n scale o f - 4 to 4. - 4 = least, + 4 ~ mo~t+
WHITE W h i t e n i n g p o w e r o n scale o f - 4 to 4. - 4 = least, + 4 = most.
FLAVOR Scale o f - 4 to 4. - 4 = w o r s t flavor, + 4 = best.
DUMMY I D u m m y variable e q u a l t o 1 if the alternative is C l o s e u p a n d 0 otherwise.
DUMMY 2 D u m m y variable e q u a l t o 1 if t h e alternative is C o l g a t e a n d 0 otherwise.
DUMMY 3 D u m m y variable e q u a l to 1 if the alternative is C r e s t a n d 0 otherwise.
48 ZL. Herowitz, J.$. Louviere ~Intern. Z of Research in Marketing 12 (1995) 39-54

T~ 2
E s t i m a t i o n results f o r choice o f g r o c e r y store ( s t a n d a r d e r r o r s in p a r e n t h e s e s )
Parameter Main Hyp. AlL 1 Alt. 2 Alt. 3
I d C~L~m~ Set

PRICE 0.2589 0.2205 0.2072 0.2275

(0.0664) (0.0936) (0.0556) (0.0635)
SERVICE 0.0176 0.0939 0.0317 0.0374
(0.0511) (0.0615) (0.0379) (0.0469)
QUAUTY 0.1406 0.1205 0.1286 0.1301
(0.0586) (0.0708) (0.0468) (0.0540)
CONVEN. 0.3583 0.3989 0.2553 0.3570
(0.0729) (0.0970) (0.0614) (0.0737)
FFL DUMMY - 0.7979 - 0.8825 -- 0.6087 -0.8444
(0.3193) (0.4431 ) (0.2009) (0.2957)
IGA DUMMY - 0.1201 - 0.9806 - 0.0776 - 0.3292
(0.4309) (0.7130) (0.3364) (0.4410)
$FWY DUMMY 0.3586 - 0.2664 0.2929 0.0722
(0.3768) (0.498'~) (0.2910) (0.3385)
~, and ~ Coeffs.
PRICE 0.2894
(0.1163)
SERVICE - O. 1053
(0.1288)
QUALITY 0.1816
(0.1474)
CONVEN. 0.3747
(0.1221)
FFL DUMMY - 0.4952
(0.5443)
IGA DUMMY 0.6296
(0.5934)
SFWY DUMMY 1.3100
(0.8106)
0.3387
(0.2901)
L~g Like. - 138.156 - 134.277 - I37.818 - 135.559
E~,~ 2 o f C o n s i d e r a t i o n Set
~ coeffs.
PRIC[: 0.2449 022(5 0.2058 0.1700
(0.0694) (0.0927) (0.590) (0.0594)
SERVICE 0.0118 0.0939 0.0335 0.0232
(0.0496) (0.0613) , ,u . u. '.1.~.o ] •
~ , .v.. t.r.-.t ~. , l •]
~

QUAW__~r!"Y 0.i457 0.1205 0.1312 0.1214

(0.0538) (0.0722) (0AM59) (0.0436)
CONVEN. 0.4017 0.3989 0.3317 0.3768
(0.0675) (0.0962) (0.0670) (0.0615)
FFL DUMMY - 0.6655 - 0.8825 - 0.5067 - 0.7957
(0.3334) (0.4486) (0.2463) (0.3069)
~.GA D U M M Y - 0.39! ! - 0.9__806 - 0.2442 - 0.7001
(0.4317) (0.7243) (0.3703) (0.4086)
SFWY DUMMY 0.3031 - 0.2664 0.4853 - 0.0582
(0.3623) (0.4981) (0.3115) (0.3049)
 ZL. Horowitz, ZZ Louuiere / Intern. £ of Research in Marketing 12 (1995) Y9-54
Table 2 (continued)
Parameter Main Hyp.
Definition 2 of Consideration Set
3' and 8 Coeffs.
PRICE
SERVICE
QUALITY
CONVEN.
FFL DUMMY
IGA DUMMY
SFWY DUMMY
8 0.7870
l o g Like. - 137.797
estimation results for choice of grocery store, and
Table 3 gives the results for choice of toothpaste.
All attributes were measured such that posi-
tive values represent better positions. Hence, all
coefficients of attributes are expected to have
positive signs. It can be seen from Tables 2 and 3
that this expectation is fulfilled except for the y
coefficients of SERVICE in the models of choice
of grocery store and of WHITE in one of the
models of choice of toothpaste. These coeffi-
cients are not statistically significantly different
from 0 at the 0.10 level, so no substantive signifi-
cance can be attributed to their unexpected signs.
Table 4 shows the results of testing the model
for the main hypothesis against the first alterna-
tive and of testing the second and third alterna-
tives against the main hypothesis. For choice of
grocery store with either definition of the consid-
eration set, the main hypothesis is accepted in the
tests against the first alternative model. The log-
likelihoods of the main-hypothesis model and al-
ternative model 2 are very close using either
definition of the consideration set. Thus, for
choice of grocery store, the main hypothesis model
and alternative model 2 both are consistent with
the data. The log-likelihoods of the main-hy-
pothesis model and alternative model 3 are close
49
Alt. 1 Alt. 2 #dL 3
0.2699
(0.1272)
- 0.1221
(0.1256)
0.2041
(0.1189)
0.4836
(0.1202)
- 0.1630
(0.5958)
0.2326
(0.6258)
1.6311
(0.8081)
(0.3177)
- 133.026 - 135.882 - 143.93
using definition 1 of the consideration set but n ~
definition 2. Alternative model 3 for choice of
grocery store is consistent with the data using
definition 1 of the consideration set but is re-
jected when tested against the main l ' e ~
using Definition 2.
For choice of toothpaste, the main h ~ h e s / s
is accepted in a test against altematb'e modet 1
when Definition 2 of the consideration set is
used. The main hypothesis is rejected against
alternative model 1 when Definition 1 is rood.
Alternative model 2 is rejected against the matin
hypothesis under both definitions of the consider-
ation set. Thus, the main hypothesis is consistent
with the choice-of-toothpaste data when Def'm~-
tion 2 of the consideration set is used. Alternative
model 2 is not consistent with the data under
either definition of the consideration set. Alter-
native model 3 is rejected against the main hy-
pothesis using Definition 2 of the conskteratkm
set. Using Defmition 1 of the consideration set,
the Iog-iikeiiho~l of alternative model 3 is very
close to that of the main-hypothesis modeL This
does not provide support for alternative model 3,
however, because the main-hypothesis model with
Definition 1 of the consideration set is rejected Ln
the test against alternative model 2. With Defmi-
50 ZL. Hcaonfftz, J..l. Louviere ~Intern. Z of Research in Marketing 12 (1995) 39-54

T~e 3
~rdon results for cho~-e of toothpaste (Standard Errors in Parentheses)
~ t e r Mmn H~p. Air. 1 Alt. 2 Alt. 3
1 of C e e s ~ r a t i o n Set
~ Coeffs.
FLUOR 0.3216 0.3575 0.0883 0.3148
(0.0790) (0.1082) (0.0258) (0.0719)
FP~E.SH 0.1355 0.1474 0.0086 0.0913
(0.0707) (0.0772) (0.0238) (0.0533)
WHITE 0.(1868 0.1175 0.0449 0.1009
(O.O668) (0.0852) (0.0165) (0.O6O4)
FLAVOR 0.3141 0.3335 0.1216 0.3433
(0.0766) (0.0847) (0.0342) (0.0643)
DUMMY 1 -0.8057 -0.5649 -0.4576 - 0.5704
(0.4847) (0.7087) (0.~ 355) (0.4545)
DUMMY 2 0.9507 0.2818 0.0058 1.0132
(0.4740) (0.7490) (0.1418) (0.4621)
DUMMY 3 0.8580 0.2228 - 0.1600 0.8077
(0.4845) (0.7643) (0.0961) (0.4653)
~, and ~ Caeffs.
FLUOR 0.5804
(0.3125)
FRESH 0.3915
(0.2756)
WHITE -0.1399
(0.3646)
FLAVOR 0.4151
(0.5417)
DUMMY 1 - 3.3047
(2.3351)
DUMMY 2 1.93!4
(1.1944)
DUMMY 3 2.0848
(2.2914)
~$ -1.3908
(0.2516)
L~g L/ke. - 92.586 - 83.421 - 118.737 - 92.202

Coe~-~.
FLUOR 0.2992 0.3575 0.0614 0.2698
(0.0750) (0.1083) (0.0284) (0.0672)
FRESH 0.1221 0.1474 0.0021 0.1041
(0.0698) (0.0776) (0.0179) (0.0452)
WHITE 0.1348 0.1175 0.0248 0.1162
(0.0539) (0.0862) (0.0168) (0.0496)
FLAVOR 0.3401 0.3335 0.0848 0.2785
(0.0758) (0.0834) (0.0361) (0.0519)
DUMMY 1 - 0.7113 - 0.5649 - 0.2355 - 0.4171
(0.6224) (0.8937) (0.1198) (0.4708)
DUMMY 2 0.9433 0.2818 0.0890 0.8611
(0.5883) (0.9202) (0.0964) (0.4607)
DUMMY 3 0.8622 0.2228 0.0567 0.8210
(0.6102) (0.9455) (0.0930) (0.4892)
 ZL, Horowitz, ZJ. Louviere / Intern. 3".of Research in Marketing 12 (1995) 39-54
Table 3 (continued)
Parameter Main Hyp.
Definition 2 of Consideration Set
y and 8 C.oeffs.
FLUOR
FRESH
WHITE
FLAVOR
DUMMY 1
DUMMY 2
DUMMY 3
8 - 1.8324
Log Like. - 98.903
tion 1 of the consideration set, alternative models
1 and 3 are both misspecified.
In summary, the results of the tests imply that
the data used in this analysis are consistent with
the hypothesis that consideration sets are indica-
tors of preferences. The data on choice of grocery
stores are also consistent with the hypothesis that
choice takes place in two stages, with the first
stage being choice of a consideration set and the
second being choice of an alternative from the
consideration set. The data on choice of tooth-
paste are consistent with the hypothesis that con-
sideration sets reflect preferences under def'mi-
tion 2 of the consideration set. The data on
choice of toothpaste are not consistent with the
hypothesis that choice takes place in two stages
using either definition of the consideration set.
S. Implications
The foregoing results suggest that considera-
tion may simply be a reflection of preferences,
rather than the first stage of a two-stage choice
process. If this hypothesis is correct, knowledge
of a consumer's consideration set provides no
information for forecasting choice beyond that
51
Air. 1 Air. 2 AlL 3
0.2377
(0.1507)
0.0647
(0.4124)
0.1528
(0.1486)
0.4340
(0.448O)
- 1.0270
(1.1463)
1.8295
( 1.2977)
1.8410
(1.3047)
(0.36O4)
- 94.276 - 105.666 - 118.4L'3
contained in ti~e consumer's utility function. Thus,
an analyst who knew consumers' utility f u n c t ~
would have no use for information on com/dera-
tion sets because consideration sets could be pre-
dicted perfectly given knowledge of their sizes.
In practice, however, analysts never know
sumers' utility functions with certainty. U t i ~
functions must be estimated from data, and
information about preferences may be useful for
improving estimation efficiency. According to our
main h~othesis, consideration sets provide infor-
mation about preferences anti, therefore, can be
used to impr~'e estimation effic/ency. To illus-
trate, we compare the standa~=d errors of the
estimates of the utility-function parameters of the
main-hypothesis model (11)-(16) with the sta.¢~
dard errors of the estimates obtained from the
marg/nal-choice-probability model (3). Under the
main hypothesis, both models yield c o n s ~ e n t
estimators of the utility-function parameters B.
However, the main-hypothesis model should yield
more effic/ent estimators because it uses com/d-
eration-set information about preferences that
the marginal model does not use.
Table 5 shows the estimates of utility-fm~ction
parameters obtained from the marginal models
for choice of grocery store and toothpaste. The
52 J.l- Horo~t~ 12. Louviere / Intern. J. of Research in Marketing 12 (1995) 39-54

Table 4 grocery store are 16-58 percent larger than those

R e s e t s of tests of m~in hypothesis
from the main-hypothesis models, depending on
Test statistic a Prob. of larger the parameter. For choice of toothpaste, the
value
analogous differences are 8-50 percent. These
Test Def. 1 Def.2 Def. 1 Def. 2 results illustrate the improvements in estimation
C't~ce of Grocery Store efficiency that can be achieved by using consider-
M ~ a hypothesis against 7.76 9.54 0.40 0.30 ation information in a model based on our main
~erm~/-ce 1
hypothesis.
Alternative 2 against 0.16 - 1.42 0.29 NAb
r a ~ hypoflms/s It is also possible to use consideration infor-
A R e r n a t ~ 3 against -2.61 6.13 NA b 0.0 mation to improve prediction efficiency. Under
Mare the main hypothesis, knowledge of a consumer's
C ' h o ~ of Toothpaste consideration set conveys information about the
M-ai~ ~'pothes/s against !8.33 9.25 0.01 0.24
alternadve 1
random component of the consumer's utility
Alternative 2 aga/nst 26.65 7.26 0.0 0.0 function. $1ais information can be used to im-
main h~x~esh prove prediction efficiency by using the main-hy-
Alternative 3 aga/nst -0_30 1 9 . 5 0 NAb 0.0 pothesis model to make predictions of choice
main ~ i s conditional on the consideration set. Specifically,
a T ~ test statistic is 2(k~g L 2 - l o g L t ) for testing the main one could calculate the probability distribution of
h : q m t h e ~ against alternative 1, (log L l - l o g L 3 + 1 / 2 ) for the random component of the utility function
testing alternative 2 against the main hypothesis, and (log L t conditional on the consideration set and use this
- l o g L4) for testing alternative 3 against the main hypothe-
sis, where log L 4 is the log-lkkel/h~x1 of alternative model 3.
distribution, instead of the type I extreme value
b Alternatives 2 and 3 are not rejected if the test statistic is distribution, to calculate choice probabilities for
r~eg~h~e. As is explained in Sectinn 2, the test cannot be purposes of prediction. The algebra of this calcu-
"turned around" to test the main-l~pothesis model against lation is lengthy and, therefore, not presented in
alternath~es 2 and 3. this paper.
Another possibility is to base estimation on
complete rankings of alternatives according to
differences between the estimated coefficients in preference instead of consideration sets, which
Table 5 and the estimated coeffic/ents for the provide only partial orderings. There is, however,
main hypothesis models in Tables 2 and 3 are not evidence that consumers may make errors in
large compared to the estimated standard errors. ranking tasks with the result that the outcomes of
The standard errors in Table 5 may be compared these tasks cannot necessarily be described by a
with those obtained from the main-hypothesis utility function and may not reflect the prefer-
models in Tables 2 and 3. The standard errors ences that would govern choices among lower-
obtained from the marginal model for choice of ranking alternatives (Ben-Akiva et al., 1992).

Table 5
F_~inmthm results for marginal-choice-probabilitymodel
of Grocery Store Choice of Toothpaste
Parameter Estimate Std. Err. Parameter Estimate Std. Err.
PRICE 0.2151 0.0911 FLUOR 0.3594 0.1070
SERVICE 0.0903 0.0607 FRESH 0.1538 0.0754
QUALITY 0.1253 0.0681 WHITE 0.1125 0.0808
CON%'EN. 0.3986 0.0935 FLAVOR 0.3354 0.0827
FFL DUMMY - 0.9128 0.4403 DUMMY 1 - 0.5272 0.6810
IGA DUMMY - 0.9888 0.6819 DUMMY 2 0.3703 0.7248
SAFWY DUMMY - 0.2570 0.4825 DUMMY 3 0.2817 0.74!9
 ZL. Horowitz, ZZ Louviere~Intern. Z of Research in Marketing 12 (1995) 39-54 53

6. Conclusions Aj to indicate that alternative i is p r e e n e d to

alternative j.
This paper has presented evidence supporting Equation (8): This follows direaIy from (3),
the hypothesis that standard operational consid- (4), and (7).
eration sets are indicators of preferences and Equation (9): Under the main hypothes~ A~
provide no information useful for predicting is chosen and {A I, A 2} is the conskleratkm ~ Lf
choices beyond that contained in the consumer's A 1>A2>A3>A 4 or A~ > A 2 > A 4 > A 3. TI~r¢-
utility function. Under this hypothesis, choice fore,
need not be modeled as a two-stage process in
which a consideration stage precedes choice. In- P ( A , , C,21Jc = 2, x)
deed, modeling choice this way may lead to a = P ( A t > A 2 > A 3>A4] r)
misspecified model that makes erroneous predic- + P ( A i > A 2 > A 4 >A3[ x).
tions. However, information about consideration
sets can be used by the analyst to improve estima- Beggs et ai. (i98i) have shown that when the
tion and prediction efficiency in a properly speci- random components of utility have the type I
fied choice model. extreme value distribution,
The results presented here are preliminary, P ( A 1 > A 2 > A 3 >A4[ X)
and more research on the role in choice modeling
= P( All Al, A 2 , A 3 , .44, x )
of operational consideration sets is warranted.
One potentially important direction of inquiry is ×P(A2I A2, Aa, A4, .1~)
context dependence. It is entirely possible that • P(A3I n3, A4, x) (A1)
the role of consideration sets depends on the
and
choice context. This possibility is suggested by
our inability to discriminate empirically between P( A~ > A~ > A 4 > A 3] x)
the main-hypothesis model for choice of grocery = P ( A I I A l, A 2, A 3, ,'14, X)
store and a two-stage model, whereas two-stage
models were rejected for choice of toothpaste. ×P(A2[ A2, A3, A4, x )
Two-stage decision making in which a prelimi- • P(A4[ A3, A 4, x ) (A2)
nary screening or consideration stage precedes But
choice also may be prevalent when the choice set
is very large or choice is among unfamiliar alter- P(A31A3, A4, x) +l'(A41A3, A4, x)= I.
natives. Therefore, adding (AI) and (A2) y~Ids (9).
Equation (I0): Under the main hypothesis, A L
is chosen and {AI, A2, A 3} is the consideration
Acknowledgement set if A 1 > A 2 > A 3 > A 4 or A, > A 3 > A 2 > A 4.
Therefore,
We thank John Roberts for suggesting the
third alternative model described in this paper. e(A,, C, l Jc 3, x)
=

This research was supported in part by NSF grant = P ( A t >A 2 > A ; >A41 x)
no. SES-8520076. The research of Joel L.
+ P(A1 >A3 >A2 >A4[ x).
Horowitz was also supported in part by NSF
grant no. SBR 93-07677. Using the result of Beggs et al. (1981),
P ( A l >A 3 >A 2 >A4[ x)
Appendix: Derivation of Eqs. (8)-(10) = P ( A l l A l, A 2, A 3, A4, x)
xP(A3I A2, A3, A4, x)
Assume that the random components of utility
are independently and identically disgributed with "P(A2I A2, A4, x). (A3)
the type I extreme value distribution. Write A~ > Eq. (10) is obtained by adding (A1) and (A3).
54 ZL. H ~ r ~ z , ].I. Louviere / Intern. Z of Research in Marketing 12 (1995) 39-54
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