arXiv subjects

Alec Sandroni

Publications and source records attributed to Alec Sandroni.

2 recordsLinked to original sources

arXiv2025

Random Utility with Aggregation

We study random utility (RU) rationality with aggregation when the underlying alternatives in each aggregate vary across consumers and are unobserved, as is typical for an outside option. RUM over the underlying alternatives is the natural assumption on the data generating process, while an aggregated random utility model (ARUM) is the standard empirical tool. We characterize RU rationality in three frameworks and show its testable implications are substantially weaker than those of an ARUM. We provide two independent conditions for their equivalence: non-overlapping preferences within aggregates and menu-independent aggregation. Simulations show that violating either condition produces meaningful estimation bias when imposing an ARUM.

econ.TH↗

arXiv2023

Random Utility with Unobservable Alternatives

The random utility model, a cornerstone in economics, is axiomatized by Falmagne (1978) and McFadden and Richter (1990) with the assumption that if a menu is observable, the choice frequencies of all alternatives are also observable. However, in practice, it is common for choice frequencies of some alternatives to remain unobserved. To address this discrepancy, we obtain the testable implications of the random utility model when the choice frequencies of some alternatives are unobservable, which consist of nonredundant inequality constraints on observed choice frequencies. Our findings indicate that the widespread empirical practice of aggregating unobserved alternatives into a single "outside option" fails to capture significant implications of random utility models.

econ.TH↗