nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2010‒07‒03
four papers chosen by
Philip Yu
Hong Kong University

  1. A Salience Theory of Choice Errors By Manzini, Paola; Mariotti, Marco
  2. Reducing Status Quo Bias in Choice Experiments – An Application of a Protest Reduction Entreaty By Ole Bonnichsen; Jacob Ladenburg
  3. Can subjective expectations data be used in choice models? Evidence on cognitive biases By Basit Zafar
  4. Modelling heterogeneity in response behaviour towards a sequence of discrete choice questions: a latent class approach By McNair, Ben J.; Hensher, David A.; Bennett, Jeff

  1. By: Manzini, Paola (University of St. Andrews); Mariotti, Marco (University of St. Andrews)
    Abstract: We study a psychologically based foundation for choice errors. The decision maker applies a preference ranking after forming a 'consideration set' prior to choosing an alternative. Membership of the consideration set is determined both by the alternative specific salience and by the rationality of the agent (his general propensity to consider all alternatives). The model turns out to include a logit formulation as a special case. In general, it has a rich set of implications both for exogenous parameters and for a situation in which alternatives can affect their own salience (salience games). Such implications are relevant to assess the link between 'revealed' preferences and 'true' preferences: for example, less rational agents may paradoxically express their preference through choice more truthfully than more rational agents.
    Keywords: discrete choice, random utility, logit model, consideration sets, bounded rationality
    JEL: D0
    Date: 2010–06
  2. By: Ole Bonnichsen (Institute of Food and Resource Economics, University of Copenhagen); Jacob Ladenburg (Danish Institute of Governmental Research)
    Abstract: In stated preference literature, the tendency to choose the alternative representing the status quo situation seems to exceed real life status quo effects. Accordingly, status quo bias can be a problem. In Choice Experiments, status quo bias is found to be strongly correlated with protest attitudes toward the cost attribute. If economic values are to be elicited, this problem is difficult to remedy. In a split sample framework we test a novel ex-ante entreaty aimed specifically at the cost attribute and find that it effectively reduces status quo bias and improves the internal validity of the hypothetical preferences.
    Keywords: Choice Experiment, Status Quo Bias, Entreaty, Stated Preference,
    JEL: C10 C51 C52 C90
    Date: 2010–06
  3. By: Basit Zafar
    Abstract: A pervasive concern with the use of subjective data in choice models is that the data are biased and endogenous. This paper examines the extent to which cognitive biases plague subjective data, specifically addressing 1) whether cognitive dissonance affects the reporting of beliefs, and 2) whether individuals exert sufficient mental effort when probed about their subjective beliefs. For this purpose, I collect a unique panel data set of Northwestern University undergraduates that contains their subjective expectations about outcomes specific to different majors in their choice set. I do not find evidence of cognitive biases systematically affecting the reporting of beliefs: By analyzing patterns of belief updating, I can rule out cognitive dissonance being a serious concern in the current setting. Moreover, there seems to be no systematic (nonclassical) measurement error in the reporting of beliefs. In the reported beliefs for the various majors, I find no systematic patterns in mental recall of previous responses or in the extent of rounding. Comparison of subjective beliefs with objective measures suggests that students have well-formed expectations. Overall, the results paint a favorable picture for the use of subjective expectations data in choice models.
    Keywords: Bayesian statistical decision theory ; Human behavior ; Social choice ; Universities and colleges
    Date: 2010
  4. By: McNair, Ben J.; Hensher, David A.; Bennett, Jeff
    Abstract: There is a growing body of evidence in the non-market valuation literature suggesting that responses to a sequence of discrete choice questions tend to violate the assumptions typically made by analysts regarding independence of responses and stability of preferences. Heuristics such as value learning and strategic misrepresentation have been offered as explanations for these results. While a few studies have tested these heuristics as competing hypotheses, none have investigated the possibility that each explains the response behaviour of a subgroup of the population. In this paper, we make a contribution towards addressing this research gap by presenting an equality-constrained latent class model designed to estimate the proportion of respondents employing each of the proposed heuristics. We demonstrate the model on binary and multinomial choice data sources and find three distinct types of response behaviour. The results suggest that accounting for heterogeneity in response behaviour may be a better way forward than attempting to identify a single heuristic to explain the behaviour of all respondents.
    Keywords: Choice experiment; latent class; ordering effects; strategic response; willingness-to-pay
    JEL: Q51 C25
    Date: 2010–06

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