Using Probabilistic Stated Preference Analyses to Understand Actual Choices

Abstract

Can stated preferences help in counterfactual analyses of actual choice? This research proposes a novel approach to researchers who have access to both stated choices in hypothetical scenarios and actual choices. The key idea is to use probabilistic stated choices to identify the distribution of individual unobserved heterogeneity, even in the presence of measurement error. If this unobserved heterogeneity is the source of endogeneity, the researcher can correct for its influence in a demand function estimation using actual choices, and recover causal effects. Estimation is possible with an off-the-shelf Group Fixed Effects estimator.