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  3. American Economic Review
  4. April 2025
  5. Weighted Linear Discrete Choice

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Weighted Linear Discrete Choice

  • Christopher P. Chambers
  • Yusufcan Masatlioglu
  • Paulo Natenzon
  • Collin Raymond
American Economic Review
vol. 115, no. 4, April 2025
(pp. 1226–57)
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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.

Citation

Chambers, Christopher P., Yusufcan Masatlioglu, Paulo Natenzon, and Collin Raymond. 2025. "Weighted Linear Discrete Choice." American Economic Review 115 (4): 1226–57. DOI: 10.1257/aer.20220130

Additional Materials

JEL Classification

  • D11 Consumer Economics: Theory
  • D21 Firm Behavior: Theory
  • D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
  • M37 Advertising