Chapter 2: Utility Maximisation and Regret Minimisation: A Mixture of a Generalisation

This chapter proposes a new mixture model which allows for heterogeneity in sensitivities and decision rules across decision makers and attributes.

A new mixture model is put forward in which the different latent classes make use of different decision rules, where the use of generalised random regret minimisation kernel allows for within class heterogeneity in the decision rules applied across attributes.

Our theoretical developments are supported by the findings of an empirical application using data from a typical stated choice survey.

Existing work has looked at heterogeneity in decision rules and sensitivities across respondents. Other work has focused on the possibility that different decision rules apply to different attributes. This chapter puts forward a model that combines these two directions of research and does so in a way that lets the optimal specification be driven by the data rather than being imposed by the analyst.