Nonparametric Discrete Choice Models With Unobserved Heterogeneity

57 Pages Posted: 3 Sep 2007

See all articles by Richard Briesch

Richard Briesch

Southern Methodist University (SMU) - Marketing Department

Pradeep K. Chintagunta

University of Chicago

Rosa L. Matzkin

University of California, Los Angeles (UCLA)

Date Written: August 2007

Abstract

In this research, we provide a new method to estimate discrete choice models with unobserved heterogeneity that can be used with either cross-sectional or panel data. The method imposes nonparametric assumptions on the systematic subutility functions and on the distributions of the unobservable random vectors and the heterogeneity parameter. The estimators are computationally feasible and strongly consistent. We provide an empirical application of the estimator to a model of store format choice. The key insights from the empirical application are: 1) consumer response to cost and distance contains interactions and non-linear effects which implies that a model without these effects tends to bias the estimated elasticities and heterogeneity distribution and 2) the increase in likelihood for adding non-linearities is similar to the increase in likelihood for adding heterogeneity, and this increase persists as heterogeneity is included in the model.

Keywords: nonparametric, discrete choice, heterogeneity, random effects, store choice, panel data

JEL Classification: C14, C23, C33, C35

Suggested Citation

Briesch, Richard and Chintagunta, Pradeep K. and Matzkin, Rosa L., Nonparametric Discrete Choice Models With Unobserved Heterogeneity (August 2007). SMU Cox School of Business Research Paper No. 07-005. Available at SSRN: https://ssrn.com/abstract=1010369 or http://dx.doi.org/10.2139/ssrn.1010369

Richard Briesch (Contact Author)

Southern Methodist University (SMU) - Marketing Department ( email )

United States

Pradeep K. Chintagunta

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8015 (Phone)
773-702-0458 (Fax)

Rosa L. Matzkin

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

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