Weighted Linear Discrete Choice
Christopher P. Chambers, Yusufcan Masatlioglu, Paulo Natenzon, Collin Raymond
American Economic Review · 2025 · Volume 115 · Issue 4
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.
Keywords
Consumer Economics: Theory, Firm Behavior: Theory, Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection, Advertising
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