Periodic Reporting for period 3 - GEM (Generalised Entropy Models for Spatial Choices)
Período documentado: 2020-09-01 hasta 2022-02-28
The first issue is that substitution patterns between choice alternatives are very complex. The new models will allow substitution patterns to be specified in a general and transparent way. The second issue is that so-called endogeneity issues are pervasive, which violates the underlying statistical assumptions of common models and leads to inconsistent results. The new models will enable endogeneity issues to be dealt with in a simple way.
The new models rely on a concept of generalized entropy and are related via duality to classical discrete choice models. A generalized entropy model, or just GEM, will be specified in terms of a transformation from choice probabilities to utilities. This idea is completely new. It is the exact opposite of classical discrete choice models and makes available a whole universe of new models. Early results suggest that GEM will enable the short-comings of the standard models to be overcome.
This project will develop GEM in three prototypical spatial contexts: equilibrium sorting of households, travel demand modelling, and network route choice.
Classical discrete choice models are extensively used for policy analysis and planning. Replacing these by GEM will therefore influence a multitude of decisions across a range of sectors of great societal importance with environmental, economic and welfare consequences that reach far into the future.
The second main contribution is the discovery that rational inattention discrete choice models can be based on generalized entropy and that generalized entropies exist such that the predicted demand of the rational inattention model may have the form of any additive random utility discrete choice model. This is important in several ways. First, the result opens for the reinterpretation of existing discrete choice models. The conventional discrete choice model treats consumers as perfectly utility maximizing and having perfect information regarding all choice alternatives. These assumptions are unreasonable but needed to make progress. Now we can relax the assumptions while still using the same models. Second, we now have also the possibility of using new models that take into account the effects of inattention. This can be important for describing phenomena that we difficult to describe using conventional models. In particular, we can now better think about consideration sets in different settings and explain how these may emerge within the framework of the model.
The project will furthermore contribute to understanding the role of inattention in forming behavior. This relates not only to consumer choices but also to wider issues such as stereotyping and discrimination.