Working Paper: NBER ID: w18393
Authors: Jean-Pierre H. Dubé; Günter J. Hitsch; Pranav Jindal
Abstract: We present a survey design that generalizes static conjoint experiments to elicit inter-temporal adoption decisions for durable goods. We show that consumers' utility and discount functions in a dynamic discrete choice model are jointly identified using data generated by this specific design. In contrast, based on revealed preference data, the utility and discount functions are generally not jointly identified even if consumers' expectations are known. The separation of current-period preferences from discounting is necessary to forecast the diffusion of a durable good under alternative marketing strategies. We illustrate the approach using two surveys eliciting Blu-ray player adoption decisions. Both model-free evidence and the estimates based on a dynamic discrete choice model indicate that consumers make forward-looking adoption decisions. In both surveys the average discount rate is 43 percent, corresponding to a substantially higher degree of impatience than the rate implied by aggregate asset returns. The estimates also reveal a large degree of heterogeneity in the discount rates across consumers, but only little evidence for hyperbolic discounting.
Keywords: utility functions; discount functions; durable goods; adoption; stated choice data
JEL Codes: C14; D12; D9; M31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| joint identification of utility and discount functions (D11) | accurate forecasting of durable goods diffusion (L68) |
| survey design captures intertemporal trade-offs (D15) | joint identification of utility and discount functions (D11) |
| changes in market conditions (D49) | consumer choices over time (D15) |
| consumer choices over time (D15) | accurate forecasting of durable goods diffusion (L68) |
| average discount rate of 43% (H43) | higher degree of impatience compared to aggregate asset returns (G40) |
| significant heterogeneity in discount rates (H43) | challenges the common assumption of a homogeneous discount factor (D15) |
| methodology allows for more accurate forecasting of durable goods diffusion (C53) | enhanced understanding of consumer behavior (D12) |
| little evidence supporting hyperbolic discounting (D15) | consumers do not exhibit a strong preference for immediate rewards over future utility (D15) |