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Nonparametric Bayesian modelling of monotone preferences for discrete choice experiments

Author

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  • Geweke, John

Abstract

Discrete choice experiments are widely used to learn about the distribution of individual preferences for product attributes. Such experiments are often designed and conducted deliberately for the purpose of designing new products. There is a long-standing literature on nonparametric and Bayesian modelling of preferences for the study of consumer choice when there is a market for each product, but this work does not apply when such markets fail to exist as is the case with most product attributes. This paper takes up the common case in which attributes can be quantified and preferences over these attributes are monotone. It shows that monotonicity is the only shape constraint appropriate for a utility function in these circumstances. The paper models components of utility using a Dirichlet prior distribution and demonstrates that all monotone nondecreasing utility functions are supported by the prior. It develops a Markov chain Monte Carlo algorithm for posterior simulation that is reliable and practical given the number of attributes, choices and sample sizes characteristic of discrete choice experiments. The paper uses the algorithm to demonstrate the flexibility of the model in capturing heterogeneous preferences and applies it to a discrete choice experiment that elicits preferences for different auto insurance policies.

Suggested Citation

  • Geweke, John, 2012. "Nonparametric Bayesian modelling of monotone preferences for discrete choice experiments," Journal of Econometrics, Elsevier, vol. 171(2), pages 185-204.
  • Handle: RePEc:eee:econom:v:171:y:2012:i:2:p:185-204
    DOI: 10.1016/j.jeconom.2012.06.003
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Johannes G. Jaspersen, 2016. "Hypothetical Surveys And Experimental Studies Of Insurance Demand: A Review," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 83(1), pages 217-255, January.
    2. Handel, Benjamin R. & Misra, Kanishka & Roberts, James W., 2013. "Robust firm pricing with panel data," Journal of Econometrics, Elsevier, vol. 174(2), pages 165-185.

    More about this item

    Keywords

    Demand; Dirichlet prior distribution; Markov chain Monte Carlo simulation; Willingness to pay;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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