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on Discrete Choice Models |
| By: | Haoge CHANG; NARITA Yusuke; SAITO Kota |
| Abstract: | We obtain a necessary and sufficient condition under which random-coefficient discrete choice models, such as mixed-logit models, are rich enough to approximate any nonparametric random utility models arbitrarily well across choice sets. The condition turns out to be the affine-independence of the set of characteristic vectors. When the condition fails, resulting in some random utility models that cannot be closely approximated, we identify preferences and substitution patterns that are challenging to approximate accurately. We also propose algorithms to quantify the magnitude of approximation errors. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:24043&r=dcm |
| By: | Nail Kashaev; Martin Pl\'avala; Victor H. Aguiar |
| Abstract: | We study joint probabilistic choice rules that describe the behavior of two decision makers, each facing a possibly different menu. These choice rules are separable when they can be factored into autonomous choices from each individual solely correlated through their individual probabilistic choice rules. Despite recent interest in studying such rules, a complete characterization of the restrictions on them remains an open question. A reasonable conjecture is that such restrictions on separable joint choice can be factored into individual choice restrictions. We name these restrictions separable and show that this conjecture is true if and only if the probabilistic choice rule of at least one decision maker uniquely identifies the distribution over deterministic choice rules. Otherwise, entangled choice rules exist that satisfy separable restrictions yet are not separable. The possibility of entangled choice complicates the characterization of separable choice since one needs to augment the separable restrictions with the new emerging ones. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.09045&r=dcm |
| By: | In Kyung Kim (Department of Economics, Sogang University, Seoul, Korea); Kyoo il Kim (Department of Economics, Michigan State University) |
| Abstract: | We study the impact of a boycott on one of the largest Korean dairy producers, triggered by the exposure of the firm’s unethical management practices, on sales of its own and others. We find empirical evidence that the boycott had substantial and long-lasting consequences. First, consumer utility from the boycotted products decreased significantly, reflecting consumers’ strong willingness to take part in collective action. Second, our discrete choice demand model, which addresses both price endogeneity and product substitution, estimates that sales of the boycotted firm decreased by almost eight percent, or equivalently by 8.1 million liters during the 12-month post-boycott period. Third, the boycotted firm’s sales and revenue decreases would have been more severe had the firm not cut prices after the boycott outbreak. Our findings emphasize top-level managers’ role in fostering an ethical organizational culture within the firm and taking proper and timely countermeasures to curb losses incurred by a boycott. |
| Keywords: | boycott, CSR, discrete choice demand, milk |
| JEL: | D12 L66 M14 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:2401&r=dcm |
| By: | Lucas javaudin; André de Palma (Université de Cergy-Pontoise, THEMA) |
| Abstract: | Transport simulators can be used to compute the equilibrium between transporta- tion demand and supply within complex transportation systems. However, despite their theoretical foundations, there is a lack of comparative analysis between simula- tor results and theoretical models in the literature. In this paper, we bridge this gap by introducing METROPOLIS2, a novel mesoscopic transport simulator capable of simulating agents’ travel decisions (including mode, departure-time, and route choice), based on discrete-choice theory within a dynamic, continuous-time framework. We demonstrate METROPOLIS2’s functionality through its application to the single-road bottleneck model and validate its ability to replicate analytical results. Furthermore, we provide a comprehensive overview of METROPOLIS2 in large-scale scenarios. Fi- nally, we compare METROPOLIS2’s results with those of the original METROPOLIS1 simulator in a simulation of Paris, highlighting its speed and ability to converge to an equilibrium. |
| Keywords: | transport simulation; agent-based modeling; bottleneck; dynamic traffic assignment; discrete-choice models |
| JEL: | C63 R4 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2024-03&r=dcm |
| By: | Markus Dertwinkel-Kalt; Johannes Kasinger; Dmitrij Schneider |
| Abstract: | We test for skewness preferences in a large set of observational panel data on online poker games (n=4, 450, 585). Each observation refers to a choice between a safe option and a binary risk of winning or losing the game. Our setting offers a real-world choice situation with substantial incentives where probability distributions are simple, transparent, and known to the decision-makers. Individuals reveal a strong and robust preference for skewness, which is inconsistent with expected utility theory. The effect of skewness is most pronounced among experienced and unsuccessful players but remains significant in all subsamples that we investigate, in contrast to the effect of variance. |
| Keywords: | risk preferences, choice under risk, skewness, gambling |
| JEL: | D01 D81 G40 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_10977&r=dcm |
| By: | Mogens Fosgerauy; Julien Monardoz; André de Palma (Université de Cergy-Pontoise, THEMA) |
| Abstract: | We introduce the inverse product differentiation logit (IPDL) model, a micro-founded inverse market share model for differentiated products that captures market segmentation according to one or more characteristics. The IPDL model generalizes the nested logit model to allow richer substitution patterns, including complementarity in demand, and can be estimated by linear instrumental variables regression with market-level data. Furthermore, we provide Monte Carlo experiments comparing the IPDL model to the workhorse empirical models of the literature. Lastly, we demonstrate the empirical performance of the IPDL model using a well-known dataset on the ready-to-eat cereals market. |
| JEL: | C26 D11 D12 L |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:ema:worpap:2023-17&r=dcm |
| By: | José A. Rodrigues-Neto (Research School of Economics, Australian National University); Matthew Ryan (Department of Economics and Finance, Auckland University of Technology); James Taylor (Research School of Economics, Australian National University) |
| Abstract: | The classical Luce model (Luce, 1959) assumes positivity of random choice: each available alternative is chosen with strictly positive probability. The model is characterised by Luce's choice axiom. Ahumada and Ülkü (2018) and (independently) Echenique and Saito (2019) define the general Luce model (GLM), which relaxes the positivity assumption, and show that it is characterised by a cyclical independence (CI) axiom. Cerreia-Vioglio et al. (2021) subsequently proved that the choice axiom characterises an important special case of the GLM in which a rational choice function (i.e., one that may be rationalised by a weak order) first selects the acceptable alternatives from the given menu, with any residual indifference resolved randomly in Luce fashion. The choice axiom is thus revealed as a fundamental “canon of probabilistic rationality". This result assumes that choice behaviour is specified for all non-empty, finite menus that can be constructed from a given universe, X, of alternatives. We relax this assumption by allowing choice behaviour to be specified for an arbitrary collection of non-empty, finite menus. In this context, we show that the Cerreia-Vioglio et al. (2021) result obtains when the choice axiom is replaced with a mild strengthening of CI. The latter condition implies the choice axiom, thus providing a “stricter canon". |
| Keywords: | : |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:aut:wpaper:2024-04&r=dcm |
| By: | José A. Rodrigues-Neto (Research School of Economics, Australian National University); Matthew Ryan (Department of Economics and Finance, Auckland University of Technology); James Taylor (Research School of Economics, Australian National University) |
| Abstract: | We extend and refine conditions for “Luce rationality†(i.e., the existence of a Luce – or logit – model) in the context of stochastic choice. When choice probabilities satisfy positivity, we show that the cyclical independence (CI) condition of Ahumada and Ülkü (2018) and Echenique and Saito (2019) is necessary and sufficient for Luce rationality, even if choice is only observed for a restricted set of menus. We then adapt results from the cycles approach (Rodrigues-Neto, 2009) to the common prior problem (Harsanyi, 1967-1968) to refine the CI condition, by reducing the number of cycle equations that need to be checked. A general algorithm is provided to identify a minimal sufficient set of equations (depending on the collection of menus for which choice is observed). Three cases are discussed in detail: (i) when choice is only observed from binary menus, (ii) when all menus contain a common default; and (iii) when all menus contain an element from a common binary default set. Investigation of case (i) leads to a refinement of the famous product rule. |
| Keywords: | : |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:aut:wpaper:2024-03&r=dcm |
| By: | Choi, S.; Goyal, S.; Guo, F.; Moisan, F. |
| Abstract: | Social interactions shape individual behavior and public policy increasingly uses networks to improve effectiveness. It is therefore important to understand if the theoretical predictions on the relation between networks and individual choice are empirically valid. This paper tests a key result in the theory of games on networks: an individual’s action is proportional to their (Bonacich) centrality. Our experiment shows that individual efforts increase in centrality but at a rate of increase that is lower than the theoretical prediction. These departures from equilibrium are accompanied by significant departures in individual earnings from theoretical predictions. We propose a model of network based imitation decision rule to explain these deviations. |
| JEL: | C92 D83 D85 Z13 |
| Date: | 2024–01–16 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camjip:2401&r=dcm |
| By: | Collewet, Marion; Fairley, Kim; Kessels, Roselinde; Knoef, Marike; van Vliet, Olaf |
| Abstract: | We study Dutch taxpayers’ preferences in designing a social welfare system. With help of a choice experiment we ask 2000 respondents to make choices between policy packages, characterized by different levels of income for welfare recipients, of obligations, of sanctions, of earnings and gifts disregards, and of taxes for the average Dutch household. The results show that respondents are in favor of relatively generous benefits and disregards, but also find monitoring and activation very important. Both self-interest and altruism, as well as trust in the government, appear to shape respondents' preferences. Respondents’ preferences line up with their voting behavior. |
| Date: | 2024–03–25 |
| URL: | http://d.repec.org/n?u=RePEc:osf:osfxxx:4am7e&r=dcm |
| By: | Kfir Eliaz; Ran Spiegler |
| Abstract: | We present a model of news media that shape consumer beliefs by providing information (signals about an exogenous state) and narratives (models of what determines outcomes). To amplify consumers' engagement, media maximize consumers' anticipatory utility. Focusing on a class of separable consumer preferences, we show that a monopolistic media platform facing homogenous consumers provides a false "empowering" narrative coupled with an optimistically biased signal. Consumer heterogeneity gives rise to a novel menu-design problem due to a "data externality" among consumers. The optimal menu features multiple narratives and creates polarized beliefs. These effects also arise in a competitive media market model. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.09155&r=dcm |
| By: | Gapeev, Pavel V.; Jeanblanc, Monique |
| Abstract: | In this paper, we construct supermartingales valued in [0, 1] as solutions of an appropriate stochastic differential equation on a given reference filtration generated by either a Brownian motion or a compound Poisson process. Then, by means of the results contained in [M. Jeanblanc and S. Song, Stochastic Processes Appl. 121 (2011) 1389–1410], it is possible to construct an associated random time on some extended probability space admitting such a given supermartingale as conditional survival process and we shall check that this construction (with a particular choice of supermartingale) implies that Jacod’s equivalence hypothesis, that is, the existence of a family of strictly positive conditional probability densities for the random times with respect to the reference filtration, is satisfied. We use the components of the multiplicative decomposition of the constructed supermartingales to provide explicit expressions for the conditional probability densities of the random times on the Brownian and compound Poisson filtrations. |
| Keywords: | conditional probability density process; Brownian motion; compound Poisson process; Jacod's equivalence hypothesis; Small Grant from the Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD) at the LSE |
| JEL: | C1 |
| Date: | 2024–03–15 |
| URL: | http://d.repec.org/n?u=RePEc:ehl:lserod:121059&r=dcm |
| By: | Klaus Altendorfer; Wolfgang Seiringer; Thomas Felberbauer; Balwin Bokor; Fabian Brockmann |
| Abstract: | In many supply chains, the current efforts at digitalization have led to improved information exchanges between manufacturers and their customers. Specifically, demand forecasts are often provided by the customers and regularly updated as the related customer information improves. In this paper, we investigate the influence of forecast updates on the production planning method of Material Requirements Planning (MRP). A simulation study was carried out to assess how updates in information affect the setting of planning parameters in a rolling horizon MRP planned production system. An intuitive result is that information updates lead to disturbances in the production orders for the MRP standard, and, therefore, an extension for MRP to mitigate these effects is developed. A large numerical simulation experiment shows that the MRP safety stock exploitation heuristic, that has been developed, leads to significantly improved results as far as inventory and backorder costs are concerned. An interesting result is that the fixed-order-quantity lotsizing policy performs - in most instances - better than the fixed-order-period lotsizing policy, when periodic forecast updates occur. In addition, the simulation study shows that underestimating demand is marginally more costly than overestimating it, based on the comparative analysis of all instances. Furthermore, the results indicate that the MRP safety stock exploitation heuristic can mitigate the negative effects of biased forecasts. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.11010&r=dcm |