Quantile Effects in Discrete Choice with Social Interactions

Abstract

This paper provides a method to study quantile effects in discrete choice with social interactions. The method is based on a simultaneous discrete Bayesian game from quantile preference and maximization in decision making and demonstrates heterogenous peer effects on different quantiles of discrete outcomes. The heterogeneous peer effects parameters are estimated by a nested pseudo score (NPS) approach, which is developed to tackle the computational burden pertaining to the discrete game. Consistency and asymptotic normality are established for the proposed NPS estimator. We illustrate the finite sample performance of the model and the estimator by Monte Carlo experiments and an application of the heterogeneous peer effects among students on exercise decisions, using the National Longitudinal Study of Adolescent Health dataset.

Keywords: Quantile Effects, Heterogeneous Peer Effects, Maximum Score, Discrete Bayesian Game, Nested Pseudo Score, Sequential Estimation, Exercise.

JEL Classification: C14, C31, C57, C63, I12