# DISSECTING PREFERENCE HETEROGENEITY IN CONSUMER STATED CHOICES

*Edoardo Marcucci* () and
*Valerio Gatta*

No 311, Working Papers from CREI Università degli Studi Roma Tre

**Abstract:**
This paper investigates alternative methods to account for preference heterogeneity in choice experiments. The main interest lies in assessing the different results obtainable when investigating heterogeneity in various ways. This comparison can be performed on the basis of model performance and, more interesting, by evaluating willingness to pay measures. Preference heterogeneity analysis relates to the methods used to search for it. Socioeconomic variables can be interacted with attributes and/or alternative-specific constants. Similarly one can consider different subsets of data (strata variables) and estimate a multinomial logit model for each of them. Heterogeneity in preferences can be investigated by including it in the systematic component of utility or in the stochastic one. Mixed logit and latent class models are examples of the first approach. The former, in its random variable specification, allows for random taste variations assuming a specific distribution of the attribute coefficients over the population and permit to capture additional heterogeneity by consenting parameters to vary across individuals both randomly and systematically with observable variables. In other words it accounts for heterogeneity in the mean and in the variance of the distribution of the random parameters due to individual characteristics. Latent class models capture heterogeneity by considering a discrete underlying distribution of tastes. The small number of mass points are the unobserved segments or behavioral groups within which preferences are assumed homogeneous. The probability of membership in a latent class can be additionally made a function of individual characteristics. Alternatively, heterogeneity can be incorporated in terms of the random component of utility. The covariance heterogeneity model adopts the second approach representing a generalization of the nested logit model and can be used to explain heteroscedastic error structures in the data. It allows the inclusive value parameter to be a function of choice alternative attributes and/or individual characteristics. An alternative method refers to an extension of the multinomial logit model in which the integration of unobserved heterogeneity is performed through random error components distributed according to a tree. An interesting improvement in modeling preference heterogeneity is related to its simultaneous inclusion in both systematic and stochastic parts. A valid example is the inclusion of an error component part in a random coefficient specification of the mixed multinomial logit model. The empirical data used for comparing the various methods tested relates to departure airport choice in a multi-airport region. The area of study includes two regions in central Italy, Marche and Emilia-Romagna, and four airports: Ancona, Rimini, Forlì and Bologna. A fractional factorial experimental design was adopted to construct a four alternative choice set and five hypothetical choice exercises in each questionnaire. The selection of the potentially most important attributes and their relative levels was developed on the basis of previous research.

**Keywords:** heterogeneity; airport choice; stated preferences; discrete choice model. (search for similar items in EconPapers)

**New Economics Papers:** this item is included in nep-dcm and nep-ecm

**Date:** 2011, Revised 2011

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http://host.uniroma3.it/centri/crei/pubblicazioni/ ... 011/CREI_03_2011.pdf First version, 2011 (application/pdf)

**Related works:**

Journal Article: Dissecting preference heterogeneity in consumer stated choices (2012)

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**Persistent link:** https://EconPapers.repec.org/RePEc:rcr:wpaper:03_11

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