On Substitutability and Complementarity in Discrete Choice Models

14 Pages Posted: 15 Mar 2017  

Guiyun Feng

University of Minnesota - Industrial & System Engineering

Xiaobo Li

University of Minnesota - Industrial & System Engineering

Zizhuo Wang

University of Minnesota - Industrial & System Engineering

Date Written: March 14, 2017

Abstract

In this paper, we propose the concepts of substitutability and complementarity in discrete choice models. These concepts concern whether the choice probability of one alternative in a choice model increases or decreases with the utility of another alternative, and they play important roles in capturing certain practical choice patterns, such as the halo effect. We study conditions on discrete choice models that will lead to substitutability and complementarity. Particularly, we show that the random utility model only allows substitutability between different alternatives, while the representative agent model and the welfare-based choice model allow more flexible substitutability/complementarity patterns. We also present ways of constructing choice models that exhibit complementary property.

Keywords: choice models; substitutability; complementarity

Suggested Citation

Feng, Guiyun and Li, Xiaobo and Wang, Zizhuo, On Substitutability and Complementarity in Discrete Choice Models (March 14, 2017). Available at SSRN: https://ssrn.com/abstract=2932816

Guiyun Feng

University of Minnesota - Industrial & System Engineering ( email )

111 Church Street S.E.
Minneapolis, MN 55455
United States

Xiaobo Li

University of Minnesota - Industrial & System Engineering ( email )

111 Church Street S.E.
Minneapolis, MN 55455
United States

Zizhuo Wang (Contact Author)

University of Minnesota - Industrial & System Engineering ( email )

111 Church Street S.E.
Minneapolis, MN 55455
United States

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