Discrete Choice under Risk with Limited Consideration
AbstractThis paper is concerned with learning decision-makers' preferences using data on observed choices from a finite set of risky alternatives. We propose a discrete choice model with unobserved heterogeneity in consideration sets and in standard risk aversion. We obtain sufficient conditions for the model's semi-nonparametric point identification, including in cases where consideration depends on preferences and on some of the exogenous variables. Our method yields an estimator that is easy to compute and is applicable in markets with large choice sets. We illustrate its properties using a dataset on property insurance purchases.
CitationBarseghyan, Levon, Francesca Molinari, and Matthew Thirkettle. 2021. "Discrete Choice under Risk with Limited Consideration." American Economic Review, 111 (6): 1972-2006. DOI: 10.1257/aer.20190253
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
- G22 Insurance; Insurance Companies; Actuarial Studies
- G52 Household Finance: Insurance