Discrete Choice under Risk with Limited Consideration

This paper is concerned with learning decision makers' preferences using data on observed choices from a finite set of risky alternatives. We propose a discrete choice model with unobserved heterogeneity in consideration sets and in standard risk aversion. We obtain sufficient conditions for the model's semi-nonparametric point identification, including in cases where consideration depends on preferences and on some of the exogenous variables. Our method yields an estimator that is easy to compute and is applicable in markets with large choice sets. We illustrate its properties using a dataset on property insurance purchases.Comment: 76 pages, 9 figures, 15 table

Estimating a preference-based index from the Japanese SF-36

Objective: The main objective of the study was to estimate a preference-bascd Short Form (SF)-6D index from the SF-36 for Japan and compare it with the UK results. Study Design and Setting: The SF-6D was translated into Japanese. Two hundred and forty-nine health states defined by this version of the SF-6D were then valued by a representative sample of 600 members of the Japanese general population using standard gamble (SG). These health-state values were modeled using classical parametric random-effect methods with individual-level data and ordinary least squares (OLS) on mean health-state values, together with a new nonparametric approach using Bayesian methods of estimation. Results: All parametric models estimated on Japanese data were found to perform less well than their UK counterparts in terms of poorer goodness of fit, more inconsistencies, larger prediction errors and bias, and evidence of systematic bias in the predictions. Nonparametric models produce a substantial improvement in out-of-sample predictions. The physical, role, and social dimensions have relatively larger decrements than pain and mental health compared with those in the United Kingdom. Conclusion: The differences between Japanese and UK valuations of the SF-6D make it important to use the Japanese valuation data set estimated using the nonparametric Bayesian technique presented in this article. (C) 2009 Elsevier Inc. All rights reserved

A Random Attention Model

This paper illustrates how one can deduce preference from observed choices when attention is not only limited but also random. In contrast to earlier approaches, we introduce a Random Attention Model (RAM) where we abstain from any particular attention formation, and instead consider a large class of nonparametric random attention rules. Our model imposes one intuitive condition, termed Monotonic Attention, which captures the idea that each consideration set competes for the decision-maker's attention. We then develop revealed preference theory within RAM and obtain precise testable implications for observable choice probabilities. Based on these theoretical findings, we propose econometric methods for identification, estimation, and inference of the decision maker's preferences. To illustrate the applicability of our results and their concrete empirical content in specific settings, we also develop revealed preference theory and accompanying econometric methods under additional nonparametric assumptions on the consideration set for binary choice problems. Finally, we provide general purpose software implementation of our estimation and inference results, and showcase their performance using simulations

The value of reliability

We derive the value of reliability in the scheduling of an activity of random duration, such as travel under congested conditions. We show that the minimal expected cost is linear in the mean and standard deviation of duration, regardless of the form of the standardized distribution of durations. This insight provides a unification of the scheduling model and models that include the standard deviation of duration directly as an argument in the cost or utility function. The results generalize approximately to the case where the mean and standard deviation of duration depend on the starting time. Empirical illustration is provided.

Do Peers Affect Student Achievement in China's Secondary Schools?

Peer effects have figured prominently in debates on school vouchers, desegregation, ability tracking and anti-poverty programs. Compelling evidence of their existence remains scarce for plaguing endogeneity issues such as selection bias and the reflection problem. This paper is among the first to firmly establish the link between peer performance and student achievement, using a unique dataset from China. We find strong evidence that peer effects exist and operate in a positive and nonlinear manner; reducing the variation of peer performance increases achievement; and our semi-parametric estimates clarify the tradeoffs facing policymakers in exploiting positive peers effects to increase future achievement.Peer Effects, Ability Grouping, Selection on observables, China, Academic performance, Teacher quality

Do Peers Affect Student Achievement in China's Secondary Schools?

Peer effects have figured prominently in debates on school vouchers, desegregation, ability tracking and anti-poverty programs. Compelling evidence of their existence remains scarce for plaguing endogeneity issues such as selection bias and the reflection problem. This paper firmly establishes a link between peer performance and student achievement, using a unique dataset from China. We find strong evidence that peer effects exist and operate in a positive and nonlinear manner; reducing the variation of peer performance increases achievement; and our semi-parametric estimates clarify the tradeoffs facing policymakers in exploiting positive peers effects to increase future achievement.

Earnings Functions and Rates of Return

The internal rate of return to schooling is a fundamental economic parameter that is often used to assess whether expenditure on education should be increased or decreased. This paper considers alternative approaches to estimating marginal internal rates of return for different schooling levels. We implement a general nonparametric approach to estimate marginal internal rates of return that take into account tuition costs, income taxes and nonlinearities in the earnings-schooling-experience relationship. The returns obtained by the more general method differ substantially from Mincer returns in levels and in their evolution over time. They indicate relatively larger returns to graduating from high school than from graduating from college, although both have been increasing over time.schooling, marginal internal rate of return, nonparametric estimation