Greg McAtee

Ph.D. Candidate

Department of Economics

University of North Carolina-Chapel Hill - Economics Department

Estimating Demand with Attitude: How Opinions and Feelings Affect Consumer Choice

Job Market Paper

Supplement: Theoretical Model of Consumer Behavior

Supplement: Econometric Proof

A consumerís mood, opinions, and general disposition can influence her demand for a product. While an empirical specification that models the correlation between attitudes and purchasing decisions will allow for a more accurate prediction of demand, there is disagreement among researchers over the role of attitudinal responses in estimation. This paper examines the relationship between the consumerís responses to questions about attitudes and demand for goods in order to demonstrate the most appropriate use of attitudinal data in empirical work. A theoretical model of consumer behavior identifies several latent factors that simultaneously influence the individualís purchasing decisions and responses to attitudinal questions. This correlation, driven by unobserved heterogeneity such as the individualís mood, opinions, discount factor, expectations over future outcomes, and unreported experiences, causes a simultaneity bias in specifications that include attitudinal responses as exogenous right-hand-side variables. Instead, I jointly estimate purchases and attitudinal responses using a random effects model to accurately capture the relationship between both observed outcomes. An econometric proof, a Monte Carlo experiment, and a data application show that, compared to commonly-used specifications, this jointly-estimated model improves the accuracy and efficiency of the estimated response parameters of the covariates that explain consumer demand.