Continuous approximations of discrete choice models using point process theory

Hannes Malmberg, Ola Hössjer

Research output: Chapter in Book/Report/Conference proceedingConference contribution

Abstract

We analyze continuous approximations of discrete choice models with a large number of options. We start with a discrete choice model where agents choose between different options, and where each option is defined by a characteristic vector and a utility level. For each option, the characteristic vector and the utility level are random and jointly dependent. We analyze the optimal choice, which we define as the characteristic vector of the option with the highest utility level. This optimal choice is a random variable. The continuous approximation of the discrete choice model is the distributional limit of this random variable as the number of offers tends to infinity. We use point process theory and extreme value theory to derive an analytic expression for the continuous approximation, and show that this can be done for a range of distributional assumptions. We illustrate the theory by applying it to commuting data. We also extend the initial results by showing how the theory works when characteristics belong to an infinite-dimensional space, and by proposing a setup which allows us to further relax our distributional assumptions.

Original languageEnglish (US)
Title of host publicationStochastic Processes and Applications - SPAS2017
EditorsSergei Silvestrov, Anatoliy Malyarenko, Milica Rančić
PublisherSpringer New York LLC
Pages413-435
Number of pages23
ISBN (Print)9783030028244
DOIs
StatePublished - 2018
EventInternational Conference on “Stochastic Processes and Algebraic Structures – From Theory Towards Applications”, SPAS 2017 - Västerås and Stockholm, Sweden
Duration: Oct 4 2017Oct 6 2017

Publication series

NameSpringer Proceedings in Mathematics and Statistics
Volume271
ISSN (Print)2194-1009
ISSN (Electronic)2194-1017

Conference

ConferenceInternational Conference on “Stochastic Processes and Algebraic Structures – From Theory Towards Applications”, SPAS 2017
CountrySweden
CityVästerås and Stockholm
Period10/4/1710/6/17

Keywords

  • Concomitant of order statistics
  • Discrete choice
  • Extreme value theory
  • Point processes
  • Random fields
  • Random utility

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  • Cite this

    Malmberg, H., & Hössjer, O. (2018). Continuous approximations of discrete choice models using point process theory. In S. Silvestrov, A. Malyarenko, & M. Rančić (Eds.), Stochastic Processes and Applications - SPAS2017 (pp. 413-435). (Springer Proceedings in Mathematics and Statistics; Vol. 271). Springer New York LLC. https://doi.org/10.1007/978-3-030-02825-1_18