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on Discrete Choice Models |
| By: | Filip Matejka; Alisdair McKay |
| Abstract: | Often, individuals must choose among discrete alternatives with imperfect information about their values, such as selecting a job candidate, a vehicle or a university. Before choosing, they may have an opportunity to study the options, but doing so is costly. This costly information acquisition creates new choices such as the number of and types of questions to ask the job candidates. We model these situations using the tools of the rational inattention approach to information frictions (Sims, 2003). We find that the decision maker's optimal strategy results in choosing probabilistically exactly in line with the multinomial logit model. This provides a new interpretation for a workhorse model of discrete choice theory. We also study cases for which the multinomial logit is not applicable, in particular when two options are duplicates. In such cases, our model generates a generalization of the logit formula, which is free of the limitations of the standard logit. |
| Keywords: | rational inattention; discrete choice; logit model |
| JEL: | D81 D83 D01 |
| Date: | 2011–06 |
| URL: | http://d.repec.org/n?u=RePEc:cer:papers:wp442&r=dcm |
| By: | Itai Sher; Jeremy T. Fox; Kyoo il Kim; Patrick Bajari |
| Abstract: | We study a variant of a random utility model that takes a probability distribution over preference relations as its primitive. We do not model products using a space of observed characteristics. The distribution of preferences is only partially identified using cross-sectional data on varying budget sets. Imposing monotonicity in product characteristics does not restore full identification. Using a linear programming approach to partial identification, we show how to obtain bounds on probabilities of any ordering relation. We also do constructively point identify the proportion of consumers who prefer one budget set over one or two others. This result is useful for welfare. Panel data and special regressors are two ways to gain full point identification. |
| JEL: | C25 L0 |
| Date: | 2011–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:17346&r=dcm |