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Can I linearize price utilities if they do not increment by a fixed %

Hi ,

I have used the following price options in my study - $5,$7,$10,$12,$15,$18,$20,$25
In the simulator i want to be able to interpolate the results for intermidiate price points Ex. $16.
How do I use the linear model in CBC/HB?
Or How can I use the part worth estimation to be able to interpolate?

asked Oct 18, 2012 by anonymous

2 Answers

+2 votes
There are two main options.

If you have calculated price as a part-worth function then you can assign level values in SMRT (On-line help 'Assign Level Values') and then when simulating just type in the intermediate value. Alternatively if you are using Excel as a simulator then a macro or built in function to interpolate an entered value can be written/used (e.g. forecast in Excel).

The second option is use HB to calculate price as linear function. The procedure is well described in the help file (if using V5, using On-line help, it is under 'Using the CBC/HB system'|'Attribute Information'). The result is a single coefficient (that can be constrained to be in the 'correct' direction). If subsequently using Excel to simulate it is worth also setting up a SMRT .val file as described to ensure that you convert back your input values in Excel into the correct value to apply against the coefficient. As I do this fairly infrequently I always have to do this. Not a bad practice anyway to check that the Excel simulator is set up correctly.

Personally I favour calculating part worths in the first instance using constraints. This may reveal particular threshold effects that would be obscured by an assumption of linearity but are interesting to report. If I see a 'flat line between two levels it suggests that without the constraints there would have been a reversal (usually as a result of including too many price points at the insistence of a client). If these occur or if the part worth pattern indicates linearity then it can be useful to use a linear (or log-linear) function to smooth the price response. This always depends on the objectives though.
answered Oct 18, 2012 by Andrew Reynolds Bronze (1,140 points)
0 votes
for part worths, with the assumption that the behavior towards price is linear between your two points, you can use the formula at http://en.wikipedia.org/wiki/Linear_interpolation to calculate intermediate utility values
answered Oct 18, 2012 by Bahadir Ozkurt Gold (17,010 points)