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arXiv · 2405.12467

Conditional Choice Probability Estimation of Dynamic Discrete Choice Models with 2-period Finite Dependence

Yu Hao·Hiroyuki Kasahara
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Abstract

This paper extends the work of Arcidiacono and Miller (2011, 2019) by introducing a novel characterization of finite dependence within dynamic discrete choice models, demonstrating that numerous models display 2-period finite dependence. We recast finite dependence as a problem of sequentially searching for weights and introduce a computationally efficient method for determining these weights by utilizing the Kronecker product structure embedded in state transitions. With the estimated weights, we develop a computationally attractive Conditional Choice Probability estimator with 2-period finite dependence. The computational efficacy of our proposed estimator is demonstrated through Monte Carlo simulations.

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Yu Hao, Hiroyuki Kasahara. 2024-05-21. Conditional Choice Probability Estimation of Dynamic Discrete Choice Models with 2-period Finite Dependence. https://arxiv.org/abs/2405.12467

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