Jeroen Hardon, SKIM
Aaron Hill, Sawtooth Software | SKIMspiration 2015
Two ways of making decisionsWhen utility and regret come together
A short introduction to
Random Regret
Modeling
But first, what are we doing now, and why are we looking into
something new?
RUM assumes rationality
RUM (random utility model)
• Traditional economics
• Rational agents
• Independence of
irrelevant alternatives
A
Regret modelling: How to code?
Product A has 16 GB less compared to product B,
Product A has 48 GB less compared to product C,
So product A has 16 + 48 = 64 regret on GB
B C
64GB regret
A
Regret modelling: How to code?
Product B has 16 GB more compared to product A,
Product B has 32 GB less compared to product C,
So product B has 0 + 32 = 32 regret on GB
B C
64GB regret 32
A
Regret modelling: How to code?
Product C has 46 GB more compared to product A,
Product C has 32 GB more compared to product B,
So product C has 0 + 0 = 0 regret on GB
B C
64GB regret 32 0
A
Regret modelling: How to code?
For price we follow the same logic, however here we should use the
reverse, as paying less is better!
B C
64
0
GB regret
€ regret
32
50
0
150
In contrast to RUM, RRM acknowledges that context is relevant and that we are not always rational
RUM
• Traditional economics
• Rational agents
• Independence of
irrelevant alternatives
RRM
• Behavioral economics
• Bounded reality
• There is no such
thing as irrelevant
alternatives
• Context Matters
You can only simulate the same
amount of products as you
tested in the choice task.1
Only nominal attributes can be
coded with RRM, the others
give the same result3
Using a none option is not
possible.2
RRM is not suited if only price is
the nominal attribute4
RRM limitations
We are able to incorporate
behavioral economics in our models,
in order to improve predictions1
We are continuously keeping an
eye out for new methodologies3
We are also looking in ways to
incorporate emotions in our
models2
But what does this mean for you?
Contact us
skimgroup.com
Jeroen Hardon
Director Methodology EU
Based in Rotterdam
+31 10 282 3503