nep-dcm New Economics Papers
on Discrete Choice Models
Issue of 2023‒02‒13
eighteen papers chosen by
Edoardo Marcucci
Università degli studi Roma Tre

  1. Best, worst, and Best&worst choice probabilities for logit and reverse logit models By André de Palma; Karim Kilani
  2. Identification and Estimation of Continuous-Time Job Search Models with Preference Shocks By Attila Gyetvai; Peter Arcidiacono; Arnaud Maurel; Ekaterina Jardim
  3. Foundations of self-progressive choice theories By Kemal Yildiz
  4. Preferences on Ranked-Choice Ballots By Brian Duricy
  5. Simultaneity in Binary Outcome Models with an Application to Employment for Couples By Bo E. Honore; Luojia Hu; Ekaterini Kyriazidou; Martin Weidner
  6. Labour supply, service intensity, and contracts: Theory and evidence on physicians By Bernard Fortin; Nicolas Jacquemet; Bruce Shearer
  7. Understanding public support for international climate adaptation payments: evidence from a choice experiment By Kruse, Tobias; Atkinson, Giles
  8. Germans’ Willingness to Pay for Gas and Heating By Teodora Boneva; Armin Falk; Mark Fallak; Lasse Stötzer
  9. Comparing the impact of targeted subsidies and health prompts on choice process variables and food choice: The case of dietary fiber By Gustafson, Christopher R.
  10. Testing the impact of overt and covert ordering interventions on sustainable consumption choices: a randomised controlled trial By Zhuo, Shi; Ratajczak, Michael; Thornton, Katie; Jones, Phil; Jarchlo, Ayla Ibrahimi; Gold, Natalie
  11. More Efficient Estimation of Multiplicative Panel Data Models in the Presence of Serial Correlation By Nicholas Brown; Jeffrey Wooldridge
  12. Truncated Poisson-Dirichlet approximation for Dirichlet process hierarchical models By Zhang, Junyi; Dassios, Angelos
  13. Can climate shocks make vulnerable subjects more willing to take risks? By Holden, Stein T.; Tilahun, Mesfin
  14. Robust Bayesian Choice By Stanca Lorenzo
  15. Inequality and Risk Preference By Pickard, Harry; Dohmen, Thomas; van Landeghem, Bert
  16. Similarity and Consistency in Algorithm-Guided Exploration By Yongping Bao; Ludwig Danwitz; Fabian Dvorak; Sebastian Fehrler; Lars Hornuf; Hsuan Yu Lin; Bettina von Helversen
  17. The Direction and Implications of the Content Industry in the Metaverse Era By Park, Ji Hye
  18. The economic value of land-based ecosystem services in Portugal: a spatially explicit approach By Joao Seixo; Carina Vieira da Silva; Filipe S. Campos; Pedro Cabral; Luis Catela Nunes; Maria Antonieta Cunha-e-Sa

  1. By: André de Palma (Université CYU, THEMA - Théorie économique, modélisation et applications - CNRS - Centre National de la Recherche Scientifique - CY - CY Cergy Paris Université); Karim Kilani (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM] - HESAM - HESAM Université - Communauté d'universités et d'établissements Hautes écoles Sorbonne Arts et métiers université)
    Abstract: This paper builds upon the work of Professor Marley, who, since the beginning of his long research career, has proposed rigorous axiomatics in the area of probabilistic choice models. Our study concentrates on models that can be applied to best and worst choice scaling experiments. We focus on those among these models that are based on strong assumptions about the underlying ranking of the alternatives with which the individual is assumed to be endowed when making the choice. Taking advantage of an inclusion-exclusion identity that we showed a few years ago, we propose a variety of best-worst choice probability models that could be implemented in software packages that are flourishing in this field.
    Keywords: Best-worst scaling experiments Logit model Random utility models Reverse logit model, Best-worst scaling experiments, Logit model, Random utility models, Reverse logit model JEL classification
    Date: 2022–12–27
  2. By: Attila Gyetvai; Peter Arcidiacono; Arnaud Maurel; Ekaterina Jardim
    Abstract: This paper applies some of the key insights of dynamic discrete choice models to continuoustime job search models.We propose a novel framework that incorporates preference shocks into search models, resulting in a tight connection between value functions and conditional choice probabilities. Including preference shocks allows us to establish constructive identification of all the model parameters. Our method also makes it possible to estimate rich nonstationary job search models in a simple and tractable way, without having to solve any differential equations. We apply our framework to rich longitudinal data from Hungarian administrative records, allowing for nonstationarities in offer arrival rates, wage offers, and in the flow payoff of unemployment. Longer unemployment durations are associated with substantially worse wage offers and lower offer arrival rates, which results in accepted wages falling over time.
    JEL: J64
    Date: 2022
  3. By: Kemal Yildiz
    Abstract: Consider a population of agents whose choice behaviors are partially comparable according to given primitive orderings. A choice theory specifies the set of choice functions admissible in the population. A choice theory is self-progressive if any aggregate choice behavior consistent with the theory can uniquely be represented as a probability distribution over admissible choice functions that are comparable to each other. We establish an equivalence between self-progressive choice theories and (i) well-known algebraic structures called lattices; (ii) the maximizers of supermodular functions over choice functions. Keywords: Random choice, heterogeneity, identification, lattice, supermodular optimization, multiple behavioral characteristics.
    Date: 2022–12
  4. By: Brian Duricy
    Abstract: This paper formalizes the lattice structure of the ballot voters cast in a ranked-choice election and the preferences that this structure induces. These preferences are shown to be counter to previous assumptions about the preferences of voters, which indicate that ranked-choice elections require different considerations for voters and candidates alike. While this model assumes that voters vote sincerely, the model of ranked-choice elections this paper presents allows for considerations of strategic voting in future work.
    Date: 2023–01
  5. By: Bo E. Honore; Luojia Hu; Ekaterini Kyriazidou; Martin Weidner
    Abstract: Two of Peter Schmidt’s many contributions to econometrics have been to introduce a simultaneous logit model for bivariate binary outcomes and to study estimation of dynamic linear fixed effects panel data models using short panels. In this paper, we study a dynamic panel data version of the bivariate model introduced in Schmidt and Strauss (1975) that allows for lagged dependent variables and fixed effects as in Ahn and Schmidt (1995). We combine a conditional likelihood approach with a method of moments approach to obtain an estimation strategy for the resulting model. We apply this estimation strategy to a simple model for the intra-household relationship in employment. Our main conclusion is that the within-household “correlation” in employment differs significantly by the ethnicity composition of the couple even after one allows for unobserved household specific heterogeneity.
    JEL: C01 C33 C35 E24
    Date: 2022–07
  6. By: Bernard Fortin (Département d'Economique, Université Laval - ULaval - Université Laval [Québec], CRREP - Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques - ULaval - Université Laval [Québec], CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal = University of Québec in Montréal); Nicolas Jacquemet (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Bruce Shearer (Département d'Economique, Université Laval - ULaval - Université Laval [Québec], CRREP - Centre de recherche sur les risques, les enjeux économiques, et les politiques publiques - ULaval - Université Laval [Québec], CIRANO - Centre interuniversitaire de recherche en analyse des organisations - UQAM - Université du Québec à Montréal = University of Québec in Montréal)
    Abstract: Based on linked administrative and survey panel data, we analyze the labour supply behaviour of physicians who could adopt either a standard fee-for-service contract or a mixed remuneration (MR) contract. Under MR, physicians received a per diem and a reduced fee for services provided. We present estimates of a structural discrete choice model that incorporates service intensity (services provided per hour) and contract choice into a labour supply framework. We use our estimates to predict (ex ante) the effects of contracts on physician behaviour and welfare, as measured by average equivalent variations. The supply of services is reduced under a MR contract, suggesting incentives matter. Hours spent seeing patients is less sensitive to incentives than the supply of services. Our results suggest that a reform forcing all physicians to adopt the MR system would have substantially larger effects on physician behaviour than were measured under the observed reform. A pure salary (per diem) reform would sharply reduce services but would increase time spent seeing patients.
    Keywords: Practice Patterns of Physicians, Labour Supply, Service Intensity, Fee-for-Service Contract, Mixed Remuneration Contract, Discrete Choice Models
    Date: 2021–09
  7. By: Kruse, Tobias; Atkinson, Giles
    Abstract: While the importance of climate change adaptation is not in doubt, adaptation funding in developing countries remains scarce. Therefore, climate finance institutions and national decision-makers face difficult trade-offs when allocating funds. While not a substitute for expert judgement, we argue that understanding how the public thinks could play a role in building support. Using a representative sample of the UK population, we use a discrete choice experiment to explore in particular the way in which distributional considerations drive respondent decisions in two dimensions: (a) among recipients of adaptation finance in recipient developing countries, and (b) among those who contribute to this finance (via taxation). We categorise our results as follows. First, respondents show strong distributional preferences for funds to reach the poorest individuals, supporting adoption of egalitarian policy mandates among climate adaptation funds. Secondly, respondents prefer an ‘ability-to-pay’ approach over the ‘polluter-pays-principle’ as a way of funding. Thirdly, our results suggest that a focus on communicating future benefits to UK residents can increase policy support. Overall, however, our findings also reveal that public support for global climate adaptation payments is insufficient. Yet we provide means of understanding how to allocate all-too-scarce funds and how to increase support for adaptation finance.
    Keywords: climate policy; choice modelling; climate change adaption; public acceptability
    JEL: J1
    Date: 2022–04–01
  8. By: Teodora Boneva; Armin Falk; Mark Fallak; Lasse Stötzer
    Abstract: According to a representative briq survey, two-thirds of the German population would be willing to pay hig- her prices for gas and heating if this were to increase pressure on the Russian government. Four out of five Germans would lower their room temperature to save energy. And more than half of higher-income house- holds would be willing to spend some of their income to help poorer households cope with higher energy prices.
    Date: 2022–04
  9. By: Gustafson, Christopher R.
    Abstract: Fiscal tools—taxes and/or subsidies—are increasingly used to address diet-related health problems. However, some studies have found that these tools are markedly more effective if attention is draw to the tax or subsidy, suggesting that the price change alone may go unnoticed in the complex food environments that consumers face. Interventions that prompt individuals to consider health during choice show promise for promoting healthy food choices in both simple laboratory settings and complex, real-world markets. In this pre-registered study, I examine the impact of dietary fiber health prompts and/or dietary fiber subsidies on the per-serving fiber content of foods chosen, the documented set of products considered, and (self-reported) nutrition information use by participants in an online supermarket setting. Participants were randomized to one of four conditions: 1) control, 2) subsidy, 3) fiber prompt, and 4) fiber prompt + subsidy. Results show that both the prompt and prompt + subsidy conditions significantly increase fiber content of foods chosen (with the latter having a larger effect). While all three interventions influence the probability of using nutrition information during food choice and affect the set of products that respondents consider relative to the control condition, the effects were larger for the prompt and prompt + subsidy conditions. A multiple mediation analysis illustrates that both direct and indirect (through the set of products considered and the use of fiber information during choice) pathways lead to the significant overall increase in fiber content of selected foods.
    Keywords: Agricultural and Food Policy, Consumer/Household Economics, Health Economics and Policy
    Date: 2023–01–26
  10. By: Zhuo, Shi; Ratajczak, Michael; Thornton, Katie; Jones, Phil; Jarchlo, Ayla Ibrahimi; Gold, Natalie
    Abstract: Food products have significant impacts on the environment over their life cycle. We investigated whether displaying products in ascending order of carbon footprint in an online supermarket environment can shift consumer choices towards more sustainable options. We examined whether the effect of the ordering intervention differs when the ordering is overt (information about the ordering is explicit), compared to when it is covert (participants not told about the ordering). We conducted a three-arm parallel-group randomised trial using 1842 online participants from England, Wales, and Northern Ireland. Participants shopped for a meal, choosing one product from each of six product categories in a simulated online supermarket. Six products were listed vertically on each product-category page. Products were randomly ordered for the control arm but ordered by carbon footprint in the covert and overt ordering arms. In the overt ordering arm, a statement was displayed at the top of each product page about the ordering of products. The primary outcome was whether one of the three most sustainable products was chosen in each product category. There was no effect of the covert ordering on the probability of choosing more sustainable products compared with the control arm (OR = 0.97, 95% CI 0.88-1.07, p = 0.533). Furthermore, we did not find evidence that the effects of the covert ordering and overt ordering differed (p = 0.594). Within the control condition, products in different positions were chosen with similar frequencies, suggesting that product positioning does not have an impact on choices. This may explain why re-ordering products had no effect. In the overt condition, only 19.5% of people correctly answered that the products were ordered according to sustainability in a follow-up question, suggesting that they didn't notice the statement. Results suggest that choices for grocery products might be too ingrained to be changed by subtle rearrangements of choice architecture like the ordering interventions, and highlight the difficulty of conveying information effectively to consumers in the online grocery shopping environment.
    Keywords: disclosure; food choice; nudge; online supermarket; order effect; sustainable diet
    JEL: L81
    Date: 2023–02–01
  11. By: Nicholas Brown (Queen's University); Jeffrey Wooldridge (Michigan State University)
    Abstract: We provide a systemic approach in obtaining an estimator asymptotically more efficient than the popular fixed effects Poisson (FEP) estimator for panel data models with multiplicative heterogeneity in the conditional mean. In particular, we derive the optimal instrumental variables under appealing “working†second moment assumptions that allow underdispersion, overdispersion, and general patterns of serial correlation. Because parameters in the optimal instruments must be estimated, we argue for combining our new moment conditions with those that define the FEP estimator to obtain a generalized method of moments(GMM) estimator no less efficient than the FEP estimator and the estimator using the new instruments. A simulation study shows that the overidentfied GMM estimator behaves well in terms of bias and it often delivers nontrivial efficiency gains – even when the working second-moment assumptions fail. We apply the new estimator to modeling firm patent filings and spending on R&D, and find nontrivial reductions in standard errors using the new estimator.
    Keywords: fixed effects Poisson, serial correlation, optimal instruments, generalized method of moments
    JEL: C23
    Date: 2023–02
  12. By: Zhang, Junyi; Dassios, Angelos
    Abstract: The Dirichlet process was introduced by Ferguson in 1973 to use with Bayesian nonparametric inference problems. A lot of work has been done based on the Dirichlet process, making it the most fundamental prior in Bayesian nonparametric statistics. Since the construction of Dirichlet process involves an infinite number of random variables, simulation-based methods are hard to implement, and various finite approximations for the Dirichlet process have been proposed to solve this problem. In this paper, we construct a new random probability measure called the truncated Poisson–Dirichlet process. It sorts the components of a Dirichlet process in descending order according to their random weights, then makes a truncation to obtain a finite approximation for the distribution of the Dirichlet process. Since the approximation is based on a decreasing sequence of random weights, it has a lower truncation error comparing to the existing methods using stick-breaking process. Then we develop a blocked Gibbs sampler based on Hamiltonian Monte Carlo method to explore the posterior of the truncated Poisson–Dirichlet process. This method is illustrated by the normal mean mixture model and Caron–Fox network model. Numerical implementations are provided to demonstrate the effectiveness and performance of our algorithm.
    JEL: C1
    Date: 2023–01–04
  13. By: Holden, Stein T. (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Tilahun, Mesfin (Centre for Land Tenure Studies, Norwegian University of Life Sciences)
    Abstract: While economists in the past tended to assume that individual preferences, including risk preferences, are stable over time, a recent literature has developed and indicates that risk preferences respond to shocks. This paper utilizes a natural experiment with covariate (drought) and idiosyncratic shocks in combination with an independent field risk experiment. The risk experiment uses a Certainty Equivalent - Multiple Choice List (CE-MCL) approach and is played 1-2 years after the subjects were (to a varying degree) exposed to a covariate drought shock or idiosyncratic shocks. The experimental approach facilitated a comprehensive assessment of shock effects on experimental risk premiums with varying probabilities of good and bad outcomes. The experiment also facilitates the estimation of the utility curvature in an Expected Utility (EU) model, and alternatively, separate estimation of probability weighting and utility curvature in three different Rank Dependent Utility (RDU) models with a two-parameter Prelec probability weighting function. Our study is the first to comprehensively test the theoretical predictions of Gollin and Pratt (1996) versus Quiggin (2003). Gollin and Pratt (1996) build on EU theory and state that an increase in background risk will make subjects more risk averse while Quiggin (2003) states that an increase in background risk can enhance risk-taking in certain types of non-EU models. We find strong evidence that such non-EU preferences dominate in our sample and can explain the surprising result. In our sample of resource-poor young adults living in a risky semiarid rural environment in Sub-Saharan Africa, we find that the covariate drought shock had negative effects on risk premiums and the utility curvature and caused an upward shift in the probability weighting function. To our knowledge, this is the first paper to carry out such a rigorous test of a shock effect on utility curvature and probability weighting.
    Keywords: Covariate shocks; Idiosyncratic shocks; Stability of risk preference parameters; Field experiment; Ethiopia
    JEL: C93 D81
    Date: 2023–01–28
  14. By: Stanca Lorenzo (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS) and Collegio Carlo Alberto, University of Torino, Italy;)
    Abstract: A major concern with Bayesian decision making under uncertainty is the use of a single probability measure to quantify all relevant uncertainty. This paper studies prior robustness as a form of continuity of the value of a decision problem. It is shown that this notion of robustness is characterized by a form of stable choice over a sequence of perturbed decision problems, in which the available acts are perturbed in a precise fashion. Subsequently, a choice-based measure of prior robustness is introduced and applied to portfolio choice and climate mitigation.
    Keywords: Risk, Uncertainty, Robustness, Ambiguity, Robust Statistics, Prior Selection.
    JEL: C52 C61 D81
    Date: 2023–01
  15. By: Pickard, Harry (Newcastle University); Dohmen, Thomas (University of Bonn and IZA); van Landeghem, Bert (University of Sheffield)
    Abstract: This paper studies the relationship between income inequality and risk taking. Increased income inequality is likely to enlarge the scope for upward comparisons and, in the presence of reference-dependent preferences, to increase willingness to take risks. Using a globally representative dataset on risk preference in 76 countries, we empirically document that the distribution of income in a country has a positive and significant link with the preference for risk. This relationship is remarkably precise and holds across countries and individuals, as well as alternate measures of inequality. We find evidence that individuals who are more able to understand inequality and individuals who fall behind their inherent point of reference increase their preference for risk. Two complementary instrumental variable approaches support a causal interpretation of our results.
    Keywords: income inequality, risk preference, risk sensitivity
    JEL: D91 O15 D81 D01
    Date: 2023–01
  16. By: Yongping Bao; Ludwig Danwitz; Fabian Dvorak; Sebastian Fehrler; Lars Hornuf; Hsuan Yu Lin; Bettina von Helversen
    Abstract: Algorithm-based decision support systems play an increasingly important role in decisions involving exploration tasks, such as product searches, portfolio choices, and human resource procurement. These tasks often involve a trade-off between exploration and exploitation, which can be highly dependent on individual preferences. In an online experiment, we study whether the willingness of participants to follow the advice of a reinforcement learning algorithm depends on the fit between their own exploration preferences and the algorithm’s advice. We vary the weight that the algorithm places on exploration rather than exploitation, and model the participants’ decision-making processes using a learning model comparable to the algorithm’s. This allows us to measure the degree to which one’s willingness to accept the algorithm’s advice depends on the weight it places on exploration and on the similarity between the exploration tendencies of the algorithm and the participant. We find that the algorithm’s advice affects and improves participants’ choices in all treatments. However, the degree to which participants are willing to follow the advice depends heavily on the algorithm’s exploration tendency. Participants are more likely to follow an algorithm that is more exploitative than they are, possibly interpreting the algorithm’s relative consistency over time as a signal of expertise. Similarity between human choices and the algorithm’s recommendations does not increase humans’ willingness to follow the recommendations. Hence, our results suggest that the consistency of an algorithm’s recommendations over time is key to inducing people to follow algorithmic advice in exploration tasks.
    Keywords: algorithms, decision support systems, recommender systems, advice-taking, multi-armed bandit, search, exploration-exploitation, cognitive modeling
    JEL: C91 D83
    Date: 2022
  17. By: Park, Ji Hye (Korea Institute for Industrial Economics and Trade)
    Abstract: As the demand for non-face-to-face services has increased due to the COVID-19 pandemic, the conversion of offline services into online services has accelerated. Along with these changes in service provision and consumption behavior, people’s desire to have online experience that are similar to offline experiences online has also increased. The metaverse is currently attracting attention as a new technology that can satisfy this. The metaverse is a portmanteau of meta, which means transcendence and virtuality, and universe and refers to a virtual world that transcends reality. The metaverse has been mentioned as a next-generation service to succeed the Internet, and global companies such as Meta, Apple, and Microsoft are launching related technologies and services. In addition, as 5G services and metaverse-related technologies have been improved, an environment has been established to experience services similar to reality in virtual space. Currently, the metaverse is spreading mainly in content industries such as games, performances, Fortnite, and ZEPETO. Concerts and fan meetings, which were once only possible offline, are also being held on metaverse platforms. Users can create and sell content themselves, and in the metaverse individuals are able to actually engage in economic activities in combination with blockchain technology. This paper describes the salient features of metaverse technologies, the current status of the metaverse at home and abroad, and the direction of the next-generation content industry in the era of the metaverse.
    Keywords: metaverse; online services; technology; Korea; content industry; Meta; online games; Fortnite; cultural content
    JEL: L63 L83 O14 O33
    Date: 2023–01–10
  18. By: Joao Seixo; Carina Vieira da Silva; Filipe S. Campos; Pedro Cabral; Luis Catela Nunes; Maria Antonieta Cunha-e-Sa
    Abstract: This study estimates the economic value of seven land based ecosystem services for mainland Portugal in 2018. The estimated services are Climate Regulation, Drought Regulation, Erosion Prevention, using the market price methodology, and Food Supply, Pollination, Recreation and Water Purification using a meta-analytic benefit transfer function. By estimating a unique meta-analytic benefit transfer function for each service, the commodity consistency condition is addressed. Different welfare measures were not pooled together and methodological variables are not included in the vector of explanatory variables. The results are spatially explicit at the hectare level providing the benchmark to which the consequences of land-use changes to the value of ecosystem services and, therefore, to the welfare of local populations can be adequately assessed.
    Keywords: Ecosystem services, Meta-analysis, Benefit transfer, Economic valuation, Portugal
    Date: 2023

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