Economic Analysis of Choice Behavior: Incorporating Choice Set Formation, Non-compensatory Preferences and Perceptions into the Random Utility Framework

• Author / Creator

  Truong, Thuy Dang

• The Random Utility Model has become the dominant empirical model used in environmental valuation and other areas of consumer demand analysis involving the choice of discrete items. This thesis investigates in detail three assumptions of the Random Utility Model. It consists of three studies that either propose or evaluate methods of relaxing the common assumptions. The first study examines models of choice set formation – the determination of the set from which consumers make a choice. It compares a fully endogenous choice set formation model, called the Independent Availability Logit model (Swait, 1984), to the implicit availability function approach (Cascetta and Papola, 2001) that approximates choice set formation. The second study proposes an analytical model that incorporates non-compensatory preferences in the framework of the Random Utility Model. The proposed model allows for the estimation of “cutoffs” – the levels an attribute must satisfy or the alternative will not be chosen or will be penalized – without prior information about these levels. The third study explores structural models that allow for subjective perceptions of attributes.
  We find that models with choice set formation are better at capturing choice behavior compared to standard random utility models. The choice set formation process also affects welfare measures, indicating that ignoring choice set formation may result in biased welfare estimates. The proposed method to estimate cutoff levels in the second study appears to work well with synthetic data, however it is more challenging when applied to real data. We find that it is important to include cutoff information in empirical analysis, and that the results differ from models that use self-reported cutoffs. In the third study, we find that subjective perception plays a significant role in the decision making process.
  The thesis also provides some policy relevant information. The first study provides estimates of welfare measures for recreationists where wildlife is affected by Chronic Wasting Disease. The second study provides estimates of the willingness to pay for endangered species conservation. And the third study provides new estimates of the values of risk aversion when subjective perceptions on probabilities of choice are incorporated into the analysis.

• Subjects / Keywords

  • Non-compensatory Preferences
  • Choice Set Formation
  • Random utility models
  • Subjective Perception

• Graduation date

  Spring 2013

• Type of Item

  Thesis

• Degree

  Doctor of Philosophy

• DOI

  https://doi.org/10.7939/R3464P

• License

  This thesis is made available by the University of Alberta Libraries with permission of the copyright owner solely for non-commercial purposes. This thesis, or any portion thereof, may not otherwise be copied or reproduced without the written consent of the copyright owner, except to the extent permitted by Canadian copyright law.