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arXiv · 2205.05779

The Anatomy of Dependence in Multivariate Ordered Choice

Tatiana Komarova·William Matcham
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Abstract

When individuals make simultaneous decisions across multiple ordered dimensions, standard multivariate ordered choice models impose narrow bracketing: each dimension is decided as if the others did not exist. We develop a general rectangular structure model capturing broad bracketing while nesting the standard model. The framework introduces two layers of dependence, one through the decision-threshold structure and the other through the correlation of latent utilities. We provide microfoundations, prove identification, and discuss estimation. We showcase the model in applications to parental investment in children's education, cryptocurrency familiarity and expectations, and health insurance, where the latter separates moral hazard from adverse selection.

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Tatiana Komarova, William Matcham. 2022-05-11. The Anatomy of Dependence in Multivariate Ordered Choice. https://arxiv.org/abs/2205.05779

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