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Weighted Linear Discrete Choice

Author

Listed:
  • Christopher P. Chambers
  • Yusufcan Masatlioglu
  • Paulo Natenzon
  • Collin Raymond

Abstract

We introduce a new model of stochastic choice that assigns each choice option a utility, along with a salience parameter reflecting economic frictions. We characterize our model behaviorally and investigate its comparative statics properties. We show that the model generates intuitive closed-form solutions in equilibrium settings where firms can choose price, quality, and advertising. In addition, we show that the model allows for flexible substitution patterns and changes in market shares across choice sets. We demonstrate that our model can be easily identified and can outperform alternatives in demand prediction.

Suggested Citation

  • Christopher P. Chambers & Yusufcan Masatlioglu & Paulo Natenzon & Collin Raymond, 2025. "Weighted Linear Discrete Choice," American Economic Review, American Economic Association, vol. 115(4), pages 1226-1257, April.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:4:p:1226-57
    DOI: 10.1257/aer.20220130
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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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