Econometrics-I-21

Econometrics-I-21 - Applied Econometrics William Greene...

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Unformatted text preview: Applied Econometrics William Greene Department of Economics Stern School of Business Applied Econometrics 21. Discrete Choice Modeling A Microeconomics Platform Consumers Maximize Utility (!!!) Fundamental Choice Problem: Maximize U(x 1 ,x 2 ,) subject to prices and budget constraints A Crucial Result for the Classical Problem: Indirect Utility Function: V = V( p ,I) Demand System of Continuous Choices The Integrability Problem: Utility is not revealed by demands * ( ,I) / ( ,I) / I j j V p x V = - p p Theory for Discrete Choice Theory is silent about discrete choices Translation to discrete choice Existence of well defined utility indexes: Completeness of rankings Rationality: Utility maximization Axioms of revealed preferences Choice sets and consideration sets consumers simplify choice situations Implication for choice among a set of discrete alternatives Commonalities and uniqueness Does this allow us to build models? What common elements can be assumed? How can we account for heterogeneity? Revealed choices do not reveal utility, only rankings which are scale invariant Modeling the Binary Choice U i,suv = suv + P suv + suv Income + i,suv U i,sed = sed + P sed + sed Income + i,sed Chooses SUV: U i,suv > U i,sed U i,suv - U i,sed > 0 ( SUV- SED ) + (P SUV-P SED ) + ( SUV- sed)Income + i,suv - i,sed > 0 i > -[ + (P SUV-P SED ) + Income] Choosing Between Two Alternatives What Can Be Learned from the Data? (A Sample of Consumers, i = 1,,N) Are the attributes relevant? Predicting behavior- Individual- Aggregate Analyze changes in behavior when attributes change Application 210 Commuters Between Sydney and Melbourne Available modes = Air, Train, Bus, Car Observed: Choice Attributes: Cost, terminal time, other Characteristics: Household income First application: Fly or Other Binary Choice Data Choose Air Gen.Cost Term Time Income 1.0000 86.000 25.000 70.000 .00000 67.000 69.000 60.000 .00000 77.000 64.000 20.000 .00000 69.000 69.000 15.000 .00000 77.000 64.000 30.000 .00000 71.000 64.000 26.000 .00000 58.000 64.000 35.000 .00000 71.000 69.000 12.000 .00000 100.00 64.000 70.000 1.0000 158.00 30.000 50.000 1.0000 136.00 45.000 40.000 1.0000 103.00 30.000 70.000 .00000 77.000 69.000 10.000 1.0000 197.00 45.000 26.000 .00000 129.00 64.000 50.000 .00000 123.00 64.000 70.000 An Econometric Model Choose to fly iff U FLY > 0 U fly = + 1Cost + 2Time + Income + U fly > 0...
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Econometrics-I-21 - Applied Econometrics William Greene...

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