Implicit choice set generation in discrete choice models: Application to household auto ownership decisions

Abstract

Latent choice set models that account for probabilistic consideration of choice alternatives during decision making have long existed. The Manski model that assumes a two-stage representation of decision making has served as the standard workhorse model for discrete choice modeling with latent choice sets. However, estimation of the Manski model is not always feasible because evaluation of the likelihood function in the Manski model requires enumeration of all possible choice sets leading to explosion for moderate and large choice sets. In this study, we propose a new group of implicit choice set generation models that can approximate the Manski model while retaining linear complexity with respect to the choice set size. We examined the performance of the models proposed in this study using synthetic data. The simulation results indicate that the approximations proposed in this study perform considerably well in terms of replicating the Manski model parameters. We subsequently used these implicit choice set models to understand latent choice set considerations in household auto ownership decisions of resident population in the Southern California region. The empirical results confirm our hypothesis that certain segments of households may only consider a subset of auto ownership levels while making decisions regarding the number of cars to own. The results not only underscore the importance of using latent choice models for modeling household auto ownership decisions but also demonstrate the applicability of the approximations proposed in this study to estimate these latent choice set models.