STRATEGY AND BUSINESS ECONOMICS


Weighted Linear Discrete Choice


COLLIN B. RAYMOND ASSOCIATE PROFESSOR


Samuel Curtis Johnson Graduate School of Management


Cornell SC Johnson College of Business Cornell University


LINK TO PAPER LINK TO COLLIN RAYMOND VIDEO


Co-authors • Collin B. Raymond


American Economic Review, 115, 4, April 2025


Associate Professor, Samuel Curtis Johnson Graduate School of Management, Cornell SC Johnson College of Business, Cornell University


• Christopher P. Chambers, Georgetown University, Washington, DC • Yusufcan Masatlioglu, University of Maryland, College Park • Paolo Natenzon, Olin Business School, Washington University, St. Louis, MO


Summary Tis paper introduces a simple and tractable yet flexible model of probabilis-


tic discrete choice, which the authors call the weighted linear (WL) model of discrete choice. Tey introduce a new model of stochastic choice that assigns each choice option a utility, along with a salience parameter reflecting eco- nomic frictions. Characterizing their model behaviorally and investigating its comparative statics properties, they show that the model generates intuitive closed-form solutions in equilibrium settings where firms can choose price, quality, and advertising. Tey also show that the model allows for flexible sub- stitution patterns and changes in market shares across choice sets.


Te authors demonstrate that their model can be easily identified and can outperform alternatives in demand prediction. Each choice option is de- scribed by two parameters: one reflects the underlying quality or utility of an item, while the second captures the ease of choosing an item as a result of prominence, or what has been termed salience in the cognitive science and marketing literatures. Te WL model adds a single parameter to describe each option compared to the widely used Luce model (also called the multinomial logit model). Although many models generalize the Luce model, this model has several advantages over the alternatives in environments where products exhibit asymmetries, especially when responding to changes in the choice set.


CONTENTS TO MAIN | RESEARCH WITH IMPACT: CORNELL SC JOHNSON COLLEGE OF BUSINESS • 2025 EDITION 59


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