Consumer choice prediction : artificial neural networks versus logistic models

Conventional econometric models, such as discriminant analysis and logistic regression have been used to predict consumer choice. However, in recent years, there has been a growing interest in applying artificial neural networks (ANN) to analyse consumer behaviour and to model the consumer decision-making process. Neural networks are considered as a field of artificial intelligence. The development of the models was inspired by the neural architecture of human brain. Neural networks have been generally applied to two different categories of problems - recognition problems and generalisation problems. Recognition problems include visual applications such as learning to recognize particular words and speak them. Generalization problems include classification and prediction. Recently, ANN have been applied in the business and marketing research areas. Most of the studies have utilised the multi-layer feed-forward neural networks (MLFN) in analysing consumer choice problems. The purpose of this paper is to empirically compare the predictive power of the probability neural network (PNN), a special class of neural networks, and a MLFN with a logistic model on consumers' choices between electronic banking and non-electronic banking. Data for this analysis was obtained through a mail survey sent to 1,960 New Zealand households. The questionnaire gathered information on the factors consumers use to decide between electronic banking versus non-electronic banking. The factors include service quality dimensions, perceived risk factors, user input factors, price factors, service product characteristics, and individual factors. In addition, demographic variables including age, gender, marital status, ethnic background, educational qualification, employment, income, and area of residence are considered in the analysis. Empirical results showed that both ANN models (MLFN and PNN) exhibit a higher overall percentage correct on consumer choice predictions than the logistic model. Furthermore, the PNN demonstrates to be the best predictive model since it has the highest overall percentage correct and a very low percentage error on both Type I and Type II errors

House price prediction: Hedonic price model vs.artificial neural network

The objective of this paper is to empirically compare the predictive power of the hedonic model with an artificial neural network model on house price prediction. A sample of 200 houses in Christchurch, New Zealand is randomly selected from the Harcourt website. Factors including house size, house age, house type, number of bedrooms, number of bathrooms, number of garages, amenities around the house and geographical location are considered. Empirical results support the potential of artificial neural network on house price prediction, although previous studies have commented on its black box nature and achieved different conclusions