nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2012‒10‒27
four papers chosen by
Philip Yu
Hong Kong University

  1. Earthquake Risk Information and Risk Aversive Behavior: Evidence from a Survey of Residents in Tokyo Metropolitan Area By Yasuo Kawawaki
  2. Stochastic Choice and Consideration Sets By Manzini, Paola; Mariotti, Marco
  3. A tractable estimator for general mixed multinomial logit models By Jonathan James
  4. Ain’t it "Suite"? Bundling in the PC Office Software Market By Gandal, Neil; Markovich, Sarit; Riordan, Michael

  1. By: Yasuo Kawawaki (Visiting Professor, Osaka School of International Public Policy (OSIPP))
    Abstract: This paper analyzes the relationship between provision of earthquake risk information and residents' willingness to pay (WTP) for disaster risk reduction by the Contingent Valuation Method (CVM), using questionnaire survey data on the purchase of earthquake insurance in the Tokyo Metropolitan Area, Japan. Degree of disaster risk aversion and subjective probability of loss are estimated as parameters of expected utility function in a discrete choice model. The results suggest that when more precise and specific earthquake risk information is provided, residents of vulnerable houses are willing to pay more for disaster risk reduction, with larger subjective probability of loss, while those in safe houses are willing to pay slightly less, with a larger degree of risk aversion.
    Keywords: CVM, WTP, Earthquake Insurance, Risk Aversion, Subjective Probability of Loss
    JEL: D81 D83 R28
    Date: 2012–10
  2. By: Manzini, Paola (University of St. Andrews); Mariotti, Marco (University of St. Andrews)
    Abstract: We model a boundedly rational agent who suffers from limited attention. The agent considers each feasible alternative with a given (unobservable) probability, the attention parameter, and then chooses the alternative that maximises a preference relation within the set of considered alternatives. Both the preference and the attention parameters are identified uniquely by stochastic choice data. The model is the only one for which the impact of removing any alternative a on the choice probability of any other alternative b is non-negative, asymmetric (either a impacts b or vice-versa), menu independent, neutral (the same on any alternative in the menu), and consistent with the impacts on a and b by a common third alternative.
    Keywords: discrete choice, random utility, logit model, consideration sets, bounded rationality, revealed preferences
    JEL: D0
    Date: 2012–10
  3. By: Jonathan James
    Abstract: The mixed logit is a framework for incorporating unobserved heterogeneity in discrete choice models in a general way. These models are difficult to estimate because they result in a complicated incomplete data likelihood. This paper proposes a new approach for estimating mixed logit models. The estimator is easily implemented as iteratively re-weighted least squares: the well known solution for complete data likelihood logits. The main benefit of this approach is that it requires drastically fewer evaluations of the simulated likelihood function, making it significantly faster than conventional methods that rely on numerically approximating the gradient. The method is rooted in a generalized expectation and maximization (GEM) algorithm, so it is asymptotically consistent, efficient, and globally convergent.
    Keywords: Econometrics ; Econometric models
    Date: 2012
  4. By: Gandal, Neil; Markovich, Sarit; Riordan, Michael
    Abstract: Our paper examines the importance of office suites for the evolution of the PC office software market in the 1990s. We develop a discrete choice model of product differentiation that enables us to estimate correlation in consumer preferences across spreadsheets and word processors. Estimation confirms strong positive correlation of consumer values for spreadsheets and word processor products, a bonus value for suites, and an advantage for Microsoft products. We use the estimated demand model to simulate various ‘hypothetical’ market structures in order to shed light on the welfare and competitive effects of bundling in the office productivity software market. We examine the competitive effects of bundling in a simulated market setting of partial competition, in which Lotus sells only a spreadsheet and WordPerfect sells only a word processor, while Microsoft sells both components as well as a suite. Assuming the rivals remain active in the market, when the correlation is positive, the introduction of the suite is pro-competitive (i.e., beneficial for consumers) on balance. This is mainly because the suite bonus 'value' is much larger than the difference between the suite price and the sum of Microsoft’s component prices when Microsoft does not offer a suite. When there is strong positive correlation (as we find), there are many such consumers who purchase both components separately when suites are not available. All of these consumers 'switch' to the suite when it is introduced, and reap significant benefits. The simulations show that the introduction of Microsoft’s Office suite also expands the distribution of spreadsheets and word processors, and this is beneficial to consumers as well.
    Keywords: Bundling; Office Productivity Software; Simulations
    JEL: D0 L1
    Date: 2012–10

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