nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2011‒02‒19
two papers chosen by
Philip Yu
Hong Kong University

  1. Differences between Decision and Experienced Utility: An Investigation using the Choice Experiment method By Colombo, Sergio; Hanley, Nick; Tinch, Dugald
  2. How wrong can you be? Implications of incorrect utility function specification for welfare measurement in choice experiments By Hanley, Nick; Riera, Antoni; Torres, Cati

  1. By: Colombo, Sergio; Hanley, Nick; Tinch, Dugald
    Abstract: Recent work by Kahneman and others has led to a new focus in economics on a wellbeing-based approach to utility. This suggests that ‘experienced utility' is an alternative and more appropriate basis for the measurement of economic value compared with ‘decision utility'. In this paper, we apply the choice experiment technique to the valuation of changes in upland landscapes in the UK, in order to identify if experience in the moment or in memory impacts on the value associated with changes in ecosystem services under different management regimes. Four treatments are employed to measure decision utility, experienced utility, and remembered utility at two different time intervals. We show that our experienced utility treatment generates very different estimates of preferences than any of the other treatments. Whilst measurement of experienced utility is rife with difficulties, the approach taken allowed the identification of experiential impacts on utility and may have implications for the future use of experienced utility as a basis for the valuation of public goods.
    Keywords: national parks; public goods; choice experiments; cost-benefit analysis; experienced utility
    Date: 2010–11
  2. By: Hanley, Nick; Riera, Antoni; Torres, Cati
    Abstract: Despite the vital role of the utility function in welfare measurement, the implications of working with incorrect utility specifications have been largely neglected in the choice experiments literature. This paper addresses the importance of specification with a special emphasis on the effects of mistaken assumptions about the marginal utility of income. Monte Carlo experiments were conducted using different functional forms of utility to generate simulated choices. Multi-Nomial Logit and Mixed Logit models were then estimated on these choices under correct and incorrect assumptions about the true, underlying utility function. Estimated willingness to pay measures from these choice modelling results are then compared with the equivalent measures directly calculated from the true utility specifications. Results show that for the parameter values and functional forms considered, a continuous-quadratic or a discrete-linear attribute specification is a good option regardless of the true effects the attribute has on utility. We also find that mistaken assumptions about preferences over costs magnify attribute mis-specification effects.
    Keywords: Monte Carlo analysis; choice experiments; efficiency; accuracy; welfare measurement; attributes; utility specification
    Date: 2010–11

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