[go: up one dir, main page]
More Web Proxy on the site http://driver.im/
IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/23566.html
   My bibliography  Save this paper

What Do Consumers Consider Before They Choose? Identification from Asymmetric Demand Responses

Author

Listed:
  • Jason Abaluck
  • Abi Adams
Abstract
Consideration set models relax the assumption that consumers are aware of all available options. Thus far, identification arguments for these models have relied either on auxiliary data on what options were considered or on instruments excluded from consideration or utility. In a discrete choice framework subsuming logit, probit and random coefficients models, we prove that utility and consideration set probabilities can be separately identified without these data intensive methods. In full-consideration models, choice probabilities satisfy a symmetry property analogous to Slutsky symmetry in continuous choice models. This symmetry breaks down in consideration set models when changes in characteristics perturb consideration, and we show that consideration probabilities are constructively identified from the resulting asymmetries. In a lab experiment, we recover preferences and consideration probabilities using only data on which items were ultimately chosen, and we apply the model to study hotel choices on Expedia.com and insurance choices in Medicare Part D.

Suggested Citation

  • Jason Abaluck & Abi Adams, 2017. "What Do Consumers Consider Before They Choose? Identification from Asymmetric Demand Responses," NBER Working Papers 23566, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23566
    Note: AG EH PE
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w23566.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kate Ho & Joseph Hogan & Fiona Scott Morton, 2017. "The impact of consumer inattention on insurer pricing in the Medicare Part D program," RAND Journal of Economics, RAND Corporation, vol. 48(4), pages 877-905, December.
    2. Jason Abaluck & Jonathan Gruber, 2011. "Choice Inconsistencies among the Elderly: Evidence from Plan Choice in the Medicare Part D Program," American Economic Review, American Economic Association, vol. 101(4), pages 1180-1210, June.
    3. Chen, Haipeng (Allan) & Levy, Daniel & Ray, Sourav & Bergen, Mark, 2008. "Asymmetric Price Adjustment in the Small," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 55(4), pages 728-737.
    4. Hector Chade & Lones Smith, 2006. "Simultaneous Search," Econometrica, Econometric Society, vol. 74(5), pages 1293-1307, September.
    5. James J. Heckman & Edward Vytlacil, 2005. "Structural Equations, Treatment Effects, and Econometric Policy Evaluation," Econometrica, Econometric Society, vol. 73(3), pages 669-738, May.
    6. Paola Manzini & Marco Mariotti, 2014. "Stochastic Choice and Consideration Sets," Econometrica, Econometric Society, vol. 82(3), pages 1153-1176, May.
    7. Christopher T. Conlon & Julie Holland Mortimer, 2013. "Demand Estimation under Incomplete Product Availability," American Economic Journal: Microeconomics, American Economic Association, vol. 5(4), pages 1-30, November.
    8. Heiss, Florian & Leive, Adam & McFadden, Daniel & Winter, Joachim, 2013. "Plan selection in Medicare Part D: Evidence from administrative data," Journal of Health Economics, Elsevier, vol. 32(6), pages 1325-1344.
    9. Florian Heiss & Daniel McFadden & Joachim Winter & Amelie Wuppermann & Bo Zhou, 2016. "Inattention and Switching Costs as Sources of Inertia in Medicare Part D," NBER Working Papers 22765, National Bureau of Economic Research, Inc.
    10. Elie Tamer, 2003. "Incomplete Simultaneous Discrete Response Model with Multiple Equilibria," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(1), pages 147-165.
    11. Lewbel, Arthur, 2007. "Endogenous selection or treatment model estimation," Journal of Econometrics, Elsevier, vol. 141(2), pages 777-806, December.
    12. Steven T. Berry & Philip A. Haile, 2009. "Nonparametric Identification of Multinomial Choice Demand Models with Heterogeneous Consumers," Cowles Foundation Discussion Papers 1718, Cowles Foundation for Research in Economics, Yale University, revised Mar 2010.
    13. Yusufcan Masatlioglu & Daisuke Nakajima & Erkut Y. Ozbay, 2012. "Revealed Attention," American Economic Review, American Economic Association, vol. 102(5), pages 2183-2205, August.
    14. Andrew Caplin & Mark Dean, 2015. "Revealed Preference, Rational Inattention, and Costly Information Acquisition," American Economic Review, American Economic Association, vol. 105(7), pages 2183-2203, July.
    15. Xavier Gabaix, 2014. "A Sparsity-Based Model of Bounded Rationality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(4), pages 1661-1710.
    16. Marc Henry & Yuichi Kitamura & Bernard Salanié, 2014. "Partial identification of finite mixtures in econometric models," Quantitative Economics, Econometric Society, vol. 5, pages 123-144, March.
    17. Elisabeth Honka, 2014. "Quantifying search and switching costs in the US auto insurance industry," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 847-884, December.
    18. Ali Hortaçsu & Seyed Ali Madanizadeh & Steven L. Puller, 2017. "Power to Choose? An Analysis of Consumer Inertia in the Residential Electricity Market," American Economic Journal: Economic Policy, American Economic Association, vol. 9(4), pages 192-226, November.
    19. Martin Gaynor & Carol Propper & Stephan Seiler, 2016. "Free to Choose? Reform, Choice, and Consideration Sets in the English National Health Service," American Economic Review, American Economic Association, vol. 106(11), pages 3521-3557, November.
    20. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
    21. Peter Davis & Pasquale Schiraldi, 2014. "The flexible coefficient multinomial logit (FC-MNL) model of demand for differentiated products," RAND Journal of Economics, RAND Corporation, vol. 45(1), pages 32-63, March.
    22. Benjamin R. Handel & Jonathan T. Kolstad, 2015. "Health Insurance for "Humans": Information Frictions, Plan Choice, and Consumer Welfare," American Economic Review, American Economic Association, vol. 105(8), pages 2449-2500, August.
    23. Lewbel, Arthur, 2000. "Semiparametric qualitative response model estimation with unknown heteroscedasticity or instrumental variables," Journal of Econometrics, Elsevier, vol. 97(1), pages 145-177, July.
    24. Hauser, John R & Wernerfelt, Birger, 1990. "An Evaluation Cost Model of Consideration Sets," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 16(4), pages 393-408, March.
    25. Jason Abaluck & Jonathan Gruber, 2016. "Evolving Choice Inconsistencies in Choice of Prescription Drug Insurance," American Economic Review, American Economic Association, vol. 106(8), pages 2145-2184, August.
    26. Griffith, Rachel & Crawford, Gregory & Iaria, Alessandro, 2016. "Preference Estimation with Unobserved Choice Set Heterogeneity using Sufficient Sets," CEPR Discussion Papers 11675, C.E.P.R. Discussion Papers.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jason Abaluck & Abi Adams, 2017. "What do consumers consider before they choose? Identification from asymmetric demand responses," IFS Working Papers W17/09, Institute for Fiscal Studies.
    2. Levon Barseghyan & Maura Coughlin & Francesca Molinari & Joshua C. Teitelbaum, 2021. "Heterogeneous Choice Sets and Preferences," Econometrica, Econometric Society, vol. 89(5), pages 2015-2048, September.
    3. Levon Barseghyan & Francesca Molinari & Matthew Thirkettle, 2021. "Discrete Choice under Risk with Limited Consideration," American Economic Review, American Economic Association, vol. 111(6), pages 1972-2006, June.
    4. Crawford, Gregory S. & Griffith, Rachel & Iaria, Alessandro, 2021. "A survey of preference estimation with unobserved choice set heterogeneity," Journal of Econometrics, Elsevier, vol. 222(1), pages 4-43.
    5. Kaufmann, Cornel & Müller, Tobias & Hefti, Andreas & Boes, Stefan, 2018. "Does personalized information improve health plan choices when individuals are distracted?," Journal of Economic Behavior & Organization, Elsevier, vol. 149(C), pages 197-214.
    6. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    7. Lu, Zhentong, 2022. "Estimating multinomial choice models with unobserved choice sets," Journal of Econometrics, Elsevier, vol. 226(2), pages 368-398.
    8. Victor H. Aguiar & Maria Jose Boccardi & Nail Kashaev & Jeongbin Kim, 2023. "Random utility and limited consideration," Quantitative Economics, Econometric Society, vol. 14(1), pages 71-116, January.
    9. Kashaev, Nail & Aguiar, Victor H., 2022. "A random attention and utility model," Journal of Economic Theory, Elsevier, vol. 204(C).
    10. Anell, Anders & Dietrichson, Jens & Ellegård, Lina Maria & Kjellsson, Gustav, 2021. "Information, switching costs, and consumer choice: Evidence from two randomised field experiments in Swedish primary health care," Journal of Public Economics, Elsevier, vol. 196(C).
    11. Xavier Gabaix, 2017. "Behavioral Inattention," NBER Working Papers 24096, National Bureau of Economic Research, Inc.
    12. Florian Heiss & Daniel McFadden & Joachim Winter & Amelie Wuppermann & Bo Zhou, 2016. "Inattention and Switching Costs as Sources of Inertia in Medicare Part D," NBER Working Papers 22765, National Bureau of Economic Research, Inc.
    13. M. Kate Bundorf & Maria Polyakova & Ming Tai-Seale, 2019. "How do Humans Interact with Algorithms? Experimental Evidence from Health Insurance," NBER Working Papers 25976, National Bureau of Economic Research, Inc.
    14. Tamara Bischof & Michael Gerfin & Tobias Mueller, 2021. "Attention Please! Health Plan Choice and (In-)Attention," Diskussionsschriften dp2111, Universitaet Bern, Departement Volkswirtschaft.
    15. Jason Abaluck & Giovanni Compiani, 2020. "A Method to Estimate Discrete Choice Models that is Robust to Consumer Search," NBER Working Papers 26849, National Bureau of Economic Research, Inc.
    16. Dahl, Gordon B. & Forbes, Silke J., 2023. "Doctor switching costs," Journal of Public Economics, Elsevier, vol. 221(C).
    17. Valentino Dardanoni & Paola Manzini & Marco Mariotti & Christopher J. Tyson, 2020. "Inferring Cognitive Heterogeneity From Aggregate Choices," Econometrica, Econometric Society, vol. 88(3), pages 1269-1296, May.
    18. Valentino Dardanoni & Paola Manzini & Marco Mariotti & Christopher J. Tyson, 2020. "Inferring Cognitive Heterogeneity From Aggregate Choices," Econometrica, Econometric Society, vol. 88(3), pages 1269-1296, May.
    19. Helmers, Christian & Krishnan, Pramila & Patnam, Manasa, 2019. "Attention and saliency on the internet: Evidence from an online recommendation system," Journal of Economic Behavior & Organization, Elsevier, vol. 161(C), pages 216-242.
    20. Cristina Gualdani & Shruti Sinha, 2019. "Identification in discrete choice models with imperfect information," Papers 1911.04529, arXiv.org, revised Dec 2023.

    More about this item

    JEL classification:

    • D0 - Microeconomics - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:23566. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.