The Generalized Stochastic Preference Choice Model

51 Pages Posted: 8 Mar 2018 Last revised: 3 Aug 2023

See all articles by Gerardo Berbeglia

Gerardo Berbeglia

University of Melbourne - Melbourne Business School

Ashwin Venkataraman

Jindal School of Management, UT Dallas

Date Written: March 10, 2018

Abstract

We propose a new discrete choice model, called the generalized stochastic preference (GSP) model, that incorporates non-rationality into the stochastic preference (SP) choice model, also known as the rank- based choice model. Our model can explain several choice phenomena that cannot be represented by any SP model such as the compromise and attraction effects, but still subsumes the SP model class. The GSP model is defined as a distribution over consumer types, where each type extends the choice behavior of rational types in the SP model. We build on existing methods for estimating the SP model and propose an iterative estimation algorithm for the GSP model that finds new types by solving a integer linear program in each iteration. We further show that our proposed notion of non-rationality can be incorporated into other choice models, like the random utility maximization (RUM) model class as well as any of its subclasses. As a concrete example, we introduce the non-rational extension of the classical MNL model, which we term the generalized MNL (GMNL) model and present an efficient expectation-maximization (EM) algorithm for estimating the GMNL model. Numerical evaluation on real choice data shows that the GMNL and GSP models can outperform their rational counterparts in out-of-sample prediction accuracy.

Keywords: random utility, discrete choice, regularity, compromise effect, decoy effect

Suggested Citation

Berbeglia, Gerardo and Venkataraman, Ashwin, The Generalized Stochastic Preference Choice Model (March 10, 2018). Available at SSRN: https://ssrn.com/abstract=3136227 or http://dx.doi.org/10.2139/ssrn.3136227

Gerardo Berbeglia (Contact Author)

University of Melbourne - Melbourne Business School ( email )

200 Leicester Street
Carlton, Victoria 3053 3186
Australia

Ashwin Venkataraman

Jindal School of Management, UT Dallas ( email )

P.O. Box 830688
Richardson, TX 75083-0688
United States

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