Working Papers by Jay Lu
# | Title | Authors | Date | Length | Paper | Abstract | |
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1461 | Mixed Logit and Pure Characteristics Models | Lu, Jay Saito, Kota | 02/01/2022 | 38 | sswp1461.pdf | Mixed logit or random coefficients logit models are used extensively in empirical work while pure characteristic models feature in much of theoretical work. We provide a theoretical analysis of the relationship between the two classes of models. First, we show an approximation theorem that precisely characterizes the extent and limitations of mixed logit approximations of pure characteristic models. Second, we present two conditions that highlight novel behavioral differences. The first is a substitutability condition that is satisfied by many pure characteristic models (including models of horizontal differentiation such as Hotelling) but is violated by almost all mixed logit models. The second is a continuity condition that is satisfied by all pure characteristic models but is violated by all mixed logit models. Both conditions pertain to choice patterns when product characteristics change or new products are introduced and illustrate the limitations of using mixed logit models for counterfactual analysis. | |
1449 | Repeated Choice: A Theory of Stochastic Intertemporal Preferences | Saito, Kota Lu, Jay | 01/01/2020 | 80 | sswp1449.pdf | We provide a repeated-choice foundation for stochastic choice. We obtain necessary and sufficient conditions under which an agent's observed stochastic choice can be represented as a limit frequency of optimal choices over time. In our model, the agent repeatedly chooses today's consumption and tomorrow's continuation menu, aware that future preferences will evolve according to a subjective ergodic utility process. Using our model, we demonstrate how not taking into account the intertemporal structure of the problem may lead an analyst to biased estimates of risk preferences. Estimation of preferences can be performed by the analyst without explicitly modeling continuation problems (i.e. stochastic choice is independent of continuation menus) if and only ifthe utility process takes on the standard additive and separable form. Applications include dynamic discrete choice models when agents have non-trivial intertemporal preferences, such as Epstein-Zin preferences. We provide a numerical example which shows the significance of biases caused by ignoring the agent's Epstein-Zin preferences. |