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Heterogeneous Choice Sets and Preferences

Levon Barseghyan (), Maura Coughlin, Francesca Molinari and Joshua Teitelbaum

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Abstract: We propose a robust method of discrete choice analysis when agents' choice sets are unobserved. Our core model assumes nothing about agents' choice sets apart from their minimum size. Importantly, it leaves unrestricted the dependence, conditional on observables, between choice sets and preferences. We first characterize the sharp identification region of the model's parameters by a finite set of conditional moment inequalities. We then apply our theoretical findings to learn about households' risk preferences and choice sets from data on their deductible choices in auto collision insurance. We find that the data can be explained by expected utility theory with low levels of risk aversion and heterogeneous non-singleton choice sets, and that more than three in four households require limited choice sets to explain their deductible choices. We also provide simulation evidence on the computational tractability of our method in applications with larger feasible sets or higher-dimensional unobserved heterogeneity.

Date: 2019-07, Revised 2021-02
New Economics Papers: this item is included in nep-dcm and nep-upt
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Journal Article: Heterogeneous Choice Sets and Preferences (2021) Downloads
Working Paper: Heterogeneous Choice Sets and Preferences (2019) Downloads
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