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The Joint Identification of Utility and Discount Functions from Stated Choice Data: An Application to Durable Goods Adoption

53 Pages Posted: 9 Sep 2012 Last revised: 26 Jul 2014

Jean-Pierre Dubé

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Günter J. Hitsch

University of Chicago - Booth School of Business

Pranav Jindal

UNC Kenan-Flagler Business School

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Date Written: October 13, 2013

Abstract

We present a survey design that generalizes static conjoint experiments to elicit inter-temporal adoption decisions for durable goods. We show that consumers’ utility and discount functions in a dynamic discrete choice model are jointly identified using data generated by this specific design. In contrast, based on revealed preference data, the utility and discount functions are generally not jointly identified even if consumers’ expectations are known. The separation of current-period preferences from discounting is necessary to forecast the diffusion of a durable good under alternative marketing strategies. We illustrate the approach using two surveys eliciting Blu-ray player adoption decisions. Both model-free evidence and the estimates based on a dynamic discrete choice model indicate that consumers make forward-looking adoption decisions. In both surveys the average discount rate is 43 percent, corresponding to a substantially higher degree of impatience than the rate implied by aggregate asset returns. The estimates also reveal a large degree of heterogeneity in the discount rates across consumers, but only little evidence for hyperbolic discounting.

Keywords: conjoint analysis, diffusion models, durable goods adoption, dynamic discrete choice models, identification of discount factors

JEL Classification: C14, D9, D12, M31

Suggested Citation

Dubé, Jean-Pierre and Hitsch, Günter J. and Jindal, Pranav, The Joint Identification of Utility and Discount Functions from Stated Choice Data: An Application to Durable Goods Adoption (October 13, 2013). Quantitative Marketing and Economics, Forthcoming; Chicago Booth Research Paper No. 12-48. Available at SSRN: https://ssrn.com/abstract=2143864 or http://dx.doi.org/10.2139/ssrn.2143864

Jean-Pierre H. Dube (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://gsb.uchicago.edu/fac/jean-pierre.dube

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Guenter J. Hitsch

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Pranav Jindal

UNC Kenan-Flagler Business School ( email )

Chapel Hill, NC 27599
United States

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