Inference of Preference Heterogeneity from Choice Data

37 Pages Posted: 13 Mar 2017  

Annie Liang

Microsoft Research

Date Written: October 4, 2016

Abstract

Suppose that an analyst observes inconsistent choices from a decision maker. Can the analyst determine whether this inconsistency arises from choice error (imperfect maximization of a single preference) or from preference heterogeneity (deliberate maximization of multiple preferences)? I model choice data as generated from context-dependent preferences, where contexts vary across observations, and the decision maker errs with small probability in each observation. I show that:

(a) simultaneously minimizing the number of inferred preferences and the number of unexplained observations can exactly recover the correct number of preferences with high probability;

(b) simultaneously minimizing the richness of the set of preferences and the number of unexplained observations can exactly recover the choice implications of the decision maker’s true preferences with high probability.

These results illustrate that selection of simple models, appropriately defined, is a useful approach for recovery of stable features of preference.

Keywords: choice, multiple preferences, nonparametric

Suggested Citation

Liang, Annie, Inference of Preference Heterogeneity from Choice Data (October 4, 2016). Available at SSRN: https://ssrn.com/abstract=2931848 or http://dx.doi.org/10.2139/ssrn.2931848

Annie Liang (Contact Author)

Microsoft Research ( email )

One Memorial Drive, 14th Floor
Cambridge, MA 02142
United States

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