Exogenous Consideration and Extended Random Utility

TL;DR

This paper explores the relationships between consideration set models and classic discrete choice models, revealing conditions under which they are observationally equivalent and analyzing welfare implications of attention interventions.

Contribution

It establishes the equivalence of consideration set additive random utility models with classic models under certain conditions and examines welfare effects of attention interventions.

Findings

All three models are observationally equivalent when utility shifters are bounded.

Welfare remains unchanged in the full consideration model but can be unbounded in limited consideration.

The identified set for consideration probabilities is minimal with bounded support and point-identified with unbounded support.

Abstract

In a consideration set model, an individual maximizes utility among the considered alternatives. I relate a consideration set additive random utility model to classic discrete choice and the extended additive random utility model, in which utility can be $-\infty$ for infeasible alternatives. When observable utility shifters are bounded, all three models are observationally equivalent. Moreover, they have the same counterfactual bounds and welfare formulas for changes in utility shifters like price. For attention interventions, welfare cannot change in the full consideration model but is completely unbounded in the limited consideration model. The identified set for consideration set probabilities has a minimal width for any bounded support of shifters, but with unbounded support it is a point: identification "towards" infinity does not resemble identification "at" infinity.