Experience as a conditioning effect on choice: Does it matter whether it is exogenous or endogenous?

Previous choice studies have proposed a way to condition the utility of each alternative in a choice set on experience with the alternatives accumulated over previous periods, defined either as a mode used or not in a most recent trip, or the mode chosen in their most recent trip and the number of similar one-way trips made during the last week. The paper found that the overall statistical performance of the mixed logit model improved significantly, suggesting that this conditioning idea has merit. Experience was treated as an exogenous influence linked to the scale of the random component, and to that extent it captures some amount of the heterogeneity in unobserved effects, purging them of potential endogeneity. The current paper continues to investigate the matter of endogeneity versus exogeneity. The proposed approach implements the control function method through the experience conditioning feature in a choice model. We develop two choice models, both using stated preference data. The paper extends the received contribution in that we allow for the endogenous variable to have an impact on the attributes through a two stage method, called the Multiple Indicator Solution, originally implemented in a different context and for a single (quality) attribute, in which stage two is the popular control function method. In the first stage, the entire utility expression associated with all observed attributes is conditioned on the prior experience with an alternative. Hence, we are capturing possible correlates associated with each and every attribute and not just one selected attribute. We find evidence of potential endogeneity. The purging exercise however, results in both statistical similarities and differences in time and cost choice elasticities and mean estimates of the value of travel time savings. We are able to identify a very practical method to correct for possible endogeneity under experience conditioning that will encourage researchers and practitioners to use such an approach in more advanced non-linear discrete choice models as a matter of routine.

Automated summary

This paper introduces a new choice model with an experience conditioning feature to address endogeneity and exogeneity issues. Conditioning on experience helps purging heterogeneity in unobserved effects and enhances the overall statistical performance of the mixed logit model.