Expectation-based consumer purchase decisions: behavioral modeling and observations

Abstract

Expectations play important roles in consumers’ purchase decisions. Among many types of expectations, consumers often form expectations on future market conditions when purchasing goods or services. This study develops a multiple-selves intertemporal choice model for such expectation-based purchase decisions, incorporating behavioral factors such as present-biased preferences into the model. An analysis based on the model shows that consumers adopt a threshold perception-perfect strategy when making purchase decisions and the threshold depends on values of model parameters that capture expectations on key market conditions. Different consumers often have different parameter values, leading to heterogeneous behavior. The study further applies the model to explain observations from medical service consumption data during the COVID-19 pandemic, and shows that the expectation-based purchase model provides a sound explanation for the observed heterogeneous purchase decisions across individuals with different incomes and health insurance status.