The Structure of Consumer Taste Heterogeneity in Revealed vs. Stated Preference Data

In recent years it has become common to use stated preference (SP) discrete choice experiments (DCEs) to study and/or predict consumer demand. SP is particularly useful when revealed preference (RP) data is unobtainable or uninformative (e.g., to predict demand for a new product with an attribute not present in existing products, to value non-traded goods). The increasing use of SP data has led to a growing body of research that compares SP vs. RP demand predictions (in contexts when both are available). The present paper goes further by comparing the structure of consumer taste heterogeneity in SP vs. RP data. Our results suggest the nature of taste heterogeneity is very different: In SP data consumers are much more likely to exhibit either (i) lexicographic preferences, or (ii) “random” choice behavior. And many consumers appear to be fairly insensitive to price. This suggests that caution should be applied before using SP to answer questions about the distribution of taste heterogeneity in actual markets. JEL Codes: D12, C35, C33, C91, M31