Reducing sample size requirements by extending discrete choice experiments to indifference elicitation

Abstract

Discrete choice (DC) methods provide a convenient approach for preference elicitation and they lead to unbiased estimates of preference model parameters if the parameterization of the value function allows for a good description of the preferences. On the other hand, indifference elicitation (IE) has been suggested as a direct trade-off estimator for preference elicitation in decision analysis decades ago, but has not found widespread application in statistical analysis frameworks as for discrete choice methods. We develop a hierarchical, probabilistic model for IE that allows us to do Bayesian inference similar to DC methods. A case study with synthetically generated data allows us to investigate potential bias and to estimate parameter uncertainty over a wide range of numbers of replies and elicitation uncertainties for both DC and IE. Through an empirical case study with laboratory-scale choice and indifference experiments, we investigate the feasibility of the approach and the excess time needed for indifference replies. Our results demonstrate (i) the absence of bias of the suggested methodology, (ii) a reduction in the uncertainty of estimated parameters by about a factor of three or a reduction of the required number of replies to achieve a similar accuracy as with DC by about a factor of ten, (iii) the feasibility of the approach, and (iv) a median increase in time needed for indifference reply of about a factor of three. If the set of respondents is small, the higher elicitation effort may be worth to achieve a reasonable accuracy in estimated value function parameters.