Weighted Linear Discrete Choice

Christopher P. Chambers, Yusufcan Masatlioglu, Paulo Natenzon and Collin Raymond

American Economic Review, 2025, vol. 115, issue 4, 1226-57

Abstract: We introduce a new model of stochastic choice that assigns each choice option a utility, along with a salience parameter reflecting economic frictions. We characterize our model behaviorally and investigate its comparative statics properties. We show that the model generates intuitive closed-form solutions in equilibrium settings where firms can choose price, quality, and advertising. In addition, we show that the model allows for flexible substitution patterns and changes in market shares across choice sets. We demonstrate that our model can be easily identified and can outperform alternatives in demand prediction.

JEL-codes: D11 D21 D43 M37 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/aer.20220130

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