What Do Consumers Consider Before They Choose? Identification from Asymmetric Demand Responses
Consideration set models relax the assumption that consumers are aware of all available options. Thus far, identification arguments for these models have relied either on auxiliary data on what options were considered or on instruments excluded from consideration or utility. In a discrete choice framework subsuming logit, probit and random coefficients models, we prove that utility and consideration set probabilities can be separately identified without these data intensive methods. In full-consideration models, choice probabilities satisfy a symmetry property analogous to Slutsky symmetry in continuous choice models. This symmetry breaks down in consideration set models when changes in characteristics perturb consideration, and we show that consideration probabilities are constructively identified from the resulting asymmetries. In a lab experiment, we recover preferences and consideration probabilities using only data on which items were ultimately chosen, and we apply the model to study hotel choices on Expedia.com and insurance choices in Medicare Part D.
Thanks to Leila Bengali and Mauricio Caceres for excellent research assistance and to Dan Ackerberg, Joe Altonji, Dan Benjamin, Steve Berry, Judy Chevalier, Jonathan Feinstein, Jeremy Fox, Xavier Gabaix, Jonathan Gruber, Phil Haile, Erzo Luttmer, Paola Manzini, Marco Mariotti, Costas Meghir, Olivia Mitchell, Fiona Scott Morton, Barry Nalebuff, Joe Shapiro, K. Sudhir and participants in the Heterogeneity in Supply and Demand Conference, the Roybal Annual Meeting, and the Yale IO, labor economics and econometrics workshops for helpful discussions. Also special thanks to Arthur Lewbel for retrieving Jason's keys when he left them in the seminar computer, and thanks to Raluca Ursu for help in replicating her Expedia analysis. We acknowledge financial support from NIA grant number R01 AG031270 and the Economic and Social Research Council, Grant ES/N017099/1. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.