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Discrete Choice under Risk with Limited Consideration

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Document pages: 76 pages

Abstract: This paper is concerned with learning decision makers preferences using dataon observed choices from a finite set of risky alternatives. We propose adiscrete choice model with unobserved heterogeneity in consideration sets andin standard risk aversion. We obtain sufficient conditions for the model ssemi-nonparametric point identification, including in cases where considerationdepends on preferences and on some of the exogenous variables. Our methodyields an estimator that is easy to compute and is applicable in markets withlarge choice sets. We illustrate its properties using a dataset on propertyinsurance purchases.

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