CALIBRATION AND TEST OF A DISCRETE-CHOICE MODEL WITH ENDOGENOUS CHOICE SETS

Conventional discrete choice models assume implicitly that the choice set is independent of the decisionmaker's preferences conditional on t he explanatory variables of the models. This assumption is implausible In many choice situations where the decisionmaker selects his or her choice set. This paper estimates and tests a discrete choice model wit h endogenous choice sets based on Horowitz' theoretical work. To calib rate the model, a new probability simulator is introduced and a sequen tial estimation procedure is developed. The model and calibration meth ods are tested in an empirical application as well as Monte Carlo simu lations. The empirical results are used to test the theory of endogeno us choice sets and to examine the differences between the new model an d a conventional choice model in parameter estimates and predicted cho ice probabilities. The empirical results strongly suggest that ignorin g the endogeneity of choice sets in choice modeling can have serious c onsequences in applications.