nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2020‒05‒18
eleven papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. The individual monetary valuation of online hotel ratings By Evangelinos, Christos; Obermeyer, Andy; Bartel, Aaron
  2. A Revealed Preference Methodology to Evaluate Regret Minimization with Challenging Choice Sets: A Wildfire Evacuation Case Study By Wong, Stephen D; Chorus, Caspar G; Shaheen, Susan A; Walker, Joan L
  3. Estimating Discount Rates Using Referendum-style Choice Experiments: An Analysis of Multiple Methods By Gregory Howard; John C. Whitehead; Jacob Hochard
  4. Measuring the Direct and Indirect Effect of Scientific Information On Valuing Stormwater Management Programs: A Hybrid Choice Model By Peter A. Groothuis; Tanga M. Mohr; John C. Whitehead; Kristan Cockerill; William P. Anderson, Jr.; Chuanhui Gu
  5. The Role of Cultural Worldviews in Willingness to Pay for Environmental Policy By Paul A. Hindsley; O. Ashton Morgan
  6. Multinomial logit processes and preference discovery: outside and inside the black box By Simone Cerreia-Vioglio; Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini
  7. Promoting discount schemes as a nudge strategy to enhance environmental behaviour By Julie Metta
  8. Nudging the Adoption of Fuel-Efficient Vehicles: Evidence from a Stated Choice Experiment in Nepal By Massimo Filippini; Nilkanth Kumar; Suchita Srinivasan
  9. Designing Direct Matching Mechanisms for India with Comprehensive Affirmative Action By Orhan Ayg\"un; Bertan Turhan
  10. School Choice with Preference Rank Classes By Nickesha Ayoade; Szilvia Pápai
  11. Matching with Generalized Lexicographic Choice Rules By Orhan Ayg\"un; Bertan Turhan

  1. By: Evangelinos, Christos; Obermeyer, Andy; Bartel, Aaron
    Abstract: We test the impact of online hotel ratings on the customers' hotel choice using a binary choice experiment where the online rating score is one of the hotels' attributes. Results show that online rating scores have a positive and significant impact on hotel choice. We also calculate the individual willingness to pay for higher rating scores and report the corresponding income and age elasticities.
    Keywords: Hotel rating,online review,discrete choice model,logit model,monetary valuation,eWOM
    JEL: C25 L8 D12 Z31
    Date: 2020
  2. By: Wong, Stephen D; Chorus, Caspar G; Shaheen, Susan A; Walker, Joan L
    Abstract: Regret is often experienced for difficult, important, and accountable choices. Consequently, we hypothesize that random regret minimization (RRM) may better describe evacuation behavior than traditional random utility maximization (RUM). However, in many travel related contexts, such as evacuation departure timing, specifying choice sets can be challenging due to unknown attribute levels and near-endless alternatives, for example. This has implications especially for estimating RRM models, which calculates attribute-level regret via pairwise comparison of attributes across all alternatives in the set. While stated preference (SP) surveys solve such choice set problems, revealed preference (RP) surveys collect actual behavior and incorporate situational and personal constraints, which impact rare choice contexts (e.g., evacuations). Consequently, we designed an RP survey for RRM (and RUM) in an evacuation context, which we distributed from March to July 2018 to individuals impacted by the 2017 December Southern California Wildfires (n=226). While we hypothesized that RRM would outperform RUM for evacuation choices, this hypothesis was not supported by our data. We explain how this is partly the result of insufficient attribute-level variation across alternatives, which leads to difficulties in distinguishing non-linear regret from linear utility. We found weak regret aversion for some attributes, and we identified weak class-specific regret for route and mode choice through a mixed-decision rule latent class choice model, suggesting that RRM for evacuations may yet prove fruitful. We derive methodological implications beyond the present context toward other RP studies involving challenging choice sets and/or limited attribute variability.
    Keywords: Engineering, Evacuation Behavior, Regret Minimization, Revealed Preference, Discrete Choice Analysis, California Wildfires
    Date: 2020–07–01
  3. By: Gregory Howard; John C. Whitehead; Jacob Hochard
    Abstract: There is a growing literature that utilizes stated preference surveys to estimate discount rates. A review of the literature reveals large variation both in the discount rate estimates coming from different stated preference surveys and in the specific methodologies used to estimate discount rates. While most methods use similar theory and logic in deriving discount rate estimates, it is an open question how much of the variation seen in the literature is due to differences in methodology. Using a single data set, we estimate annual discount rates using six different methodologies and find that most of our estimates are tightly clustered between 25 31%. One methodology yields an outlier value of 200%. We also use multiple metrics to examine which methodology yields the “right” discount rate. Key Words: Discount rate; mixed logit; discrete choice experiment
    JEL: Q58 H43 C52
    Date: 2020
  4. By: Peter A. Groothuis; Tanga M. Mohr; John C. Whitehead; Kristan Cockerill; William P. Anderson, Jr.; Chuanhui Gu
    Abstract: Following best practice in stated preference guidelines we use scientific information to develop a realistic hypothetical scenario for stormwater management and water quality improvements in a stated preference valuation survey. We then provide different treatment levels of the scientific information to survey respondents. Using a hybrid choice model, we find that scientific information has no direct influence on referendum votes in favor of a stormwater management program. However, different levels of scientific information have an indirect influence by changing concern about stormwater runoff or by changing perceived understanding of the stormwater management plan. Both of these effects have implications for valuing a stormwater management plan. We suggest that researchers should be aware of how their choice on the information provided may influence responses to a stated preference survey. Key Words: stormwater management, stream water quality, science communication, stated preferences, hybrid choice models, generalized structural equation method
    Date: 2020
  5. By: Paul A. Hindsley; O. Ashton Morgan
    Abstract: Recent research in the social psychology literature suggests that personally held beliefs may play a pivotal role in individuals’ acceptance of environmental policy. We extend previous work in this area by providing a contingent valuation method (CVM) framework that examines the interaction between cultural worldviews and willingness to pay for a policy that mitigates environmental risk. Results from a bivariate probit model indicate that individuals with communitarian and egalitarian worldviews are willing to pay significantly more for the environmental policy. We further investigate the role of cultural worldview on individuals’ support for, and valuation of, environmental policies that differ by their underlying cause. Again, cultural worldview is important and point estimates of mean willingness to pay increase if the proposed policy is designed to mitigate the effects of climate change-related issues as opposed to a more local pollution threat. Finally, results indicate that cultural worldviews also influence respondents’ perceived consequentiality with potentially important ramifications for eliciting stated preferences in a CVM framework. Key Words: Contingent valuation; cultural worldview; willingness to pay; environmental policy
    Date: 2020
  6. By: Simone Cerreia-Vioglio; Fabio Maccheroni; Massimo Marinacci; Aldo Rustichini
    Abstract: We provide two characterizations, one axiomatic and the other neuro-computational, of the dependence of choice probabilities on deadlines, within the widely used softmax representation \[ p_{t}\left( a,A\right) =\dfrac{e^{\frac{u\left( a\right) }{\lambda \left( t\right) }+\alpha \left( a\right) }}{\sum_{b\in A}e^{\frac{u\left( b\right) }{\lambda \left( t\right) }+\alpha \left( b\right) }}% \] where $p_{t}\left( a,A\right) $ is the probability that alternative $a$ is selected from the set $A$ of feasible alternatives if $t$ is the time available to decide, $\lambda$ is a time dependent noise parameter measuring the unit cost of information, $u$ is a time independent utility function, and $\alpha$ is an alternative-specific bias that determines the initial choice probabilities and possibly reflects prior information. Our axiomatic analysis provides a behavioral foundation of softmax (also known as Multinomial Logit Model when $\alpha$ is constant). Our neuro-computational derivation provides a biologically inspired algorithm that may explain the emergence of softmax in choice behavior. Jointly, the two approaches provide a thorough understanding of soft-maximization in terms of internal causes (neurophysiological mechanisms) and external effects (testable implications).
    Date: 2020–04
  7. By: Julie Metta (KU Leuven)
    Abstract: This paper presents the effects of nudging and of direct instruments on the consumer choice for reusable cups instead of disposable cups. The instruments include a financial incentive (discount schemes for consumers bringing their own cup) and communication about the scheme. The required conditions for the shop policy to be effective (i.e. induce a change in consumer behaviour through direct and indirect communication) are also evaluated. An original database was compiled from structured observations over 223 Hong Kong coffee shops, where 522 data points were collected. The research questions are answered using two strategies. First, logistic econometric approaches estimate the effects of the policies on consumer behaviour. Secondly, a qualitative comparative analysis identifies the required conditions for the consumers to use reusable cups. The results show no significant effect of the financial incentive on the targeted consumers but positive and significant effects on the other consumers who switch to in-shop reusable cups instead of disposable cups. Through effective communication about the “environment-friendly†shop policy, coffee shops affect the consumer behaviour towards reusable cups positively. I observe that nudges have higher effects than financial instruments on consumer behavioural change even when the settings account for strong conservative behaviours. The analysis of coffee shop typologies reports that coffee shops targeting a wealthier audience are more likely to achieve policy goals through nudge strategy. Length
    Keywords: Hong Kong, consumer behaviour, financial incentive, discrete choice model, qualitative comparative analysis
    JEL: C99 D83 D89 Q56
    Date: 2020–05
  8. By: Massimo Filippini (Center of Economic Research (CER-ETH), ETH Zurich, Switzerland and Universita della Svizzera italiana, Switzerland); Nilkanth Kumar (Center of Economic Research (CER-ETH), ETH Zurich, Switzerland); Suchita Srinivasan (Center of Economic Research (CER-ETH), ETH Zurich, Switzerland)
    Abstract: Addressing hazardous levels of air pollution in densely-populated cities in emerging countries requires concerted efforts to reduce fossil fuel use, especially in the transport sector. Given that motorcycles comprise almost 80% of vehicle sales in Nepal, a viable alternative to reduce air pollution is driving more fuel-efficient electric alternatives. However, their adoption has been limited due to a gamut of market failures and behavioral anomalies. In this study, we collect rich data on preferences, socio-economic factors and biases of more than 2,000 potential motorcycle buyers in the Kathmandu valley in Nepal. Using a stated choice experiment with randomized information treatments, we evaluate the role of specific behavioral anomalies in determining the stated-preference of consumers on whether they would be willing to buy an electric motorcycle. We find evidence to suggest that cognitive/skills limitations, framing of information, and the affect heuristic play a role in determining the stated-preference of respondents. In particular, displaying qualitative information on the air pollution impact of their choices, and “priming” them through impactful photographs and texts could have a positive effect. Furthermore, the results also hint at the importance of gender, health status and cognitive skills in determining the effectiveness of these nudges in promoting the adoption of electric alternatives. Implications of this study relate to policy choice in settings similar to Kathmandu, where fuel-inefficient vehicles are preferred and widely used, and the negative externalities due to air pollution are very stark.
    Keywords: Market failures, Behavioral anomalies, Electric vehicles, Stated-choice experiment, Nepal
    JEL: D1 D8 Q4 Q5
    Date: 2020–05
  9. By: Orhan Ayg\"un; Bertan Turhan
    Abstract: Since 1950, India has been implementing the most comprehensive affirmative action program in the world. Vertical reservations are provided to members of historically discriminated Scheduled Castes (SC), Scheduled Tribes (ST), and Other Backward Classes (OBC). Horizontal reservations are provided for other disadvantaged groups, such as women and disabled people, within each vertical category. As discussed in S\"onmez and Yenmez (2019a), the lack of a well-defined procedure to implement horizontal reservations results in extensive confusion. Indirect mechanisms currently used in practice do not allow reserve category applicants to fully express their preferences. Moreover, the sequential processes in use for OBC de-reservations lead to severe shortcomings. To overcome these and other related issues, we design choice rules for institutions that take meritocracy, vertical and horizontal reservations, and OBC de-reservations into account. The cumulative offer mechanisms with respect to these choice rules satisfactorily clear matching markets in India.
    Date: 2020–04
  10. By: Nickesha Ayoade (Concordia University); Szilvia Pápai (Concordia University)
    Abstract: We introduce and study a large family of rules for many-to-one matching problems, the Preference Rank Partitioned (PRP) rules. PRP rules are student-proposing Deferred Acceptance rules, where the schools select among applicants in each round taking into account both the students' preferences and the schools' priorities. In a PRP rule each school first seeks to select students based on priority rank classes, and subsequently based on preference rank classes. PRP rules include many well-known matching rules, such as the standard Deferred Acceptance rule, the Boston rule, the Chinese Application-Rejection rules of Chen and Kesten (2017), the Taiwan Deduction rules of Dur et al. (2018), and the French Priority rules of Bonkoungou (2019), in addition to matching rules that have not been studied yet. We analyze the stability, efficiency and incentive properties of PRP matching rules in this unified framework.
    Keywords: matching; school choice; Deferred Acceptance; Boston rule; stability
    JEL: C78 D61 D78 I20
    Date: 2020–02–22
  11. By: Orhan Ayg\"un; Bertan Turhan
    Abstract: Motivated by the need for real-world matching problems, this paper formulates a large class of practical choice rules, Generalized Lexicographic Choice Rules (GLCR), for institutions that consist of multiple divisions. Institutions fill their divisions sequentially, and each division is endowed with a sub-choice rule that satisfies classical substitutability and size monotonicity in conjunction with a new property that we introduce, quota monotonicity. We allow rich interactions between divisions in the form of capacity transfers. The overall choice rule of an institution is defined as the union of the sub-choices of its divisions. The cumulative offer mechanism (COM) with respect to GLCR is the unique stable and strategy-proof mechanism. We define a choice-based improvement notion and show that the COM respects improvements. We employ the theory developed in this paper in our companion paper, Ayg\"un and Turhan (2020), to design satisfactory matching mechanisms for India with comprehensive affirmative action constraints.
    Date: 2020–04

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