Development and estimation of a semi-compensatory model with flexible error structure

Semi-compensatory models, representing a sequence of an elimination-based choice set formation and a utility-based choice, show promise in increasing the behavioral realism of discrete choice models by integrating the choice set specification within the representation of the choice process. Alas, a disadvantage of current semi-compensatory models versus compensatory models is their behaviorally non-realistic assumption of an independent error structure. This study proposes a novel semi-compensatory model incorporating a flexible error structure. Specifically, the model represents a sequence of a conjunctive heuristic assuming correlated cut-off thresholds for choice set formation, and a utility-based choice assuming a substitution pattern with a nested structure across alternatives. Mathematically, the model jointly represents the conjunctive heuristic by a multidimensional mixed ordered-response model and the utility-based choice by alternatively (i) a nested-logit model and (ii) an error-component logit. In order to test the suggested methodology, the model was estimated for a sample of 1,893 ranked choices and respective threshold values from 631 students who participated in a web-based two-stage choice experiment of rental apartment choice. The estimated semi-compensatory models were compared to their compensatory counterparts. Results demonstrate the applicability and feasibility of representing flexible substitution patterns with the proposed semi-compensatory model, as well as promote the comprehension of the differences between semi-compensatory and compensatory models.