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The Options Pricing Model: An Application of Best-Worst Measurement (2004)

This article offers a case study demonstrating how best/worst scaling may be used for estimating the price sensitivity of automobile buyers to different car options, such as warranty, anti-lock brakes, and keyless entry. Using best/worst scaling, the author (Keith Chrzan), shows how price sensitivity curves may be developed for each car option, presented on a common scale. Chrzan contrasts the best/worst approach with conjoint analysis, and explains the benefits of using best/worst for this particular application rather than conjoint analysis. The results validate closely to self-reported past purchase behavior for options on the most recently purchased car.

Chrzan provides some background on best/worst, and describes how Sawtooth Software's latent class and HB software may be used during analysis. This paper was voted "best presentation" at the 2004 Sawtooth Software Conference.

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