American Economic Review Vol. 115 No. 4 2025
Weighted Linear Discrete Choice
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.
- DOI
- 10.1257/aer.20220130
- Volume
- 115
- Issue
- 4
- Pages
- 1226-1257
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref