Defining Consumer Utility
Suppose a student is trying to decide which pub he/she should go for a beer after his/her last final exam. Suppose there are two pubs in the town of the college: an Irish pub and an American pub. The researcher wishes to predict which pub he/she will choose based on the price (P) of beer and the distance (D) to each pub, assuming they are known to the researcher. Then, the consumer utilities for choosing the Irish pub and the American pub can be defined:
- (1)
- (2)
where captures unobserved variables that affect consumer utilities.
Read more about this topic: Choice Model Simulation
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