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R
julia
Arcidiacono and Miller (2011, Ecta)
<!DOCTYPE html>
title: "Conditional Choice Probabilities Estimation" author: "Jaepil Lee" date: 'r format(Sys.Date(), "%Y-%m-%d")' output: html_document:
# css: tables.css
# number_sections: yes
# theme: cerulean
# toc: yes
# toc_depth: 3
pdf_document: latex_engine: xelatex number_sections: yes toc: yes toc_depth: 3 mainfont: Calibri Light fontsize: 12pt header-includes:
- \usepackage{dcolumn}
- \usepackage{longtable}
- \usepackage{mathtools} editor_options: markdown: wrap: 80
This document introduces how Conditional Choice Probabilities (CCP) Estimation works.
The class of dynamic discrete choice model we consider is characterized as follows:
Time and Choice
- Time is discrete: $t=1,\ldots,T$.
- For each time period $t=1,\ldots,T$, the economic agent chooses one of the choices in the choice set $\mathcal{J}:=\{1,2,\ldots,J\}$.
- Denote a $J$-dimensional vector $d_{t}:=(d_{1,t},d_{2,t},\ldots,d_{J,t})$ where $d_{j,t}$ is the indicator function such that: $$ d_{j,t} = \begin{cases} 1 & \text{action } j \text{ is chosen at } t \\ 0 & \text{otherwise} \end{cases} $$
- Choices in $\mathcal{J}$ are mutually exclusive: $\sum_{j\in\mathcal{J}}d_{j,t}=1$ for all $t=1,\ldots,T$.
State space
- The realization of the state at $t$ is $(x_t,\varepsilon_t)$.
- $x_t\in\mathcal{X}:=\{1,\ldots,X\}$ has finite support and is observed by the econometrician.
- $\varepsilon_t:=(\varepsilon_{1,t},\varepsilon_{2,t},\ldots,\varepsilon_{J,t})\in\mathbb{R}^{J}$ is a $J$-dimensional vector of disturbances with a known distribution with continuous support, absolutely continuous with respect to the Lebesgue measure, and unobserved by the econometrician.
Conditional Independence
- The joint mixed density function for the state in period $t+1$ conditional on $\left(x_{t},\varepsilon_{t},j\right)$, denoted by $g_{X_{t+1},G_{t+1} \vert X_t,G_{t}}\left(x_{t+1},\varepsilon_{t+1}\left\vert x_{t},\varepsilon_{t},j\right.\right)$, satisfies the conditional independence assumption:
\begin{align*} g_{X_{t+1},G_{t+1} \vert X_{t},G_{t},j}(x_{t+1},\varepsilon_{t+1} \vert x_{t},\varepsilon_{t},j) &= \frac{g_{X_{t+1},G_{t+1},X_{t},G_{t} \vert j}(x_{t+1},\varepsilon_{t+1},x_{t},\varepsilon_{t} \vert j)}{g_{X_{t},G_{t} \vert j}(x_{t},\varepsilon_{t} \vert j)} \quad \text{by definition} \\ &= \frac{g_{X_{t+1},G_{t+1},X_{t},G_{t} \vert j}(x_{t+1},\varepsilon_{t+1},x_{t},\varepsilon_{t} \vert j)}{g_{X_{t+1}, X_{t},G_{t} \vert j}(x_{t+1},x_{t},\varepsilon_{t} \vert j)} \frac{g_{X_{t+1},X_{t},G_{t} \vert j}(x_{t+1},x_{t},\varepsilon_{t} \vert j)}{g_{X_{t},G_{t} \vert j}(x_{t},\varepsilon_{t} \vert j)} \\ &= g_{G_{t+1} \vert X_{t+1},X_{t},G_{t},j}(\varepsilon_{t+1} \vert x_{t+1},x_{t},\varepsilon_{t},j) g_{X_{t+1} \vert X_{t},G_{t},j}(x_{t+1} \vert x_{t},\varepsilon_{t},j) \\ &= g_{G_{t+1} \vert X_{t+1},G_{t}}(\varepsilon_{t+1} \vert x_{t+1},\varepsilon_{t}) g_{X_{t+1} \vert X_{t},G_{t},j}(x_{t+1} \vert x_{t},\varepsilon_{t},j) \quad \text{by Markov property} \\ &= g_{G_{t+1} \vert X_{t+1}}(\varepsilon_{t+1} \vert x_{t+1}) g_{X_{t+1} \vert X_{t},j}(x_{t+1} \vert x_{t},j) \quad \text{by conditional independence assumption} \end{align*}
- From here on, we use $g\left(\varepsilon_{t+1}|x_{t+1}\right)$ and $f_{j,t}(x_{t+1}|x_{t})$ to denote the first and the second terms in the last line:
- $g\left(\varepsilon_{t+1}|x_{t+1}\right)$ is the conditional probability density function for the disturbances.
- $f_{j,t}(x_{t+1}|x_{t})$ is the transition probability of $x_{t+1}$ occurring in period $t+1$ when action $j$ is taken in state $x_t$ at period $t$.
- Notice that we do not have a subscript $t$ in $g\left(\varepsilon_{t+1}|x_{t+1}\right)$ but in $f_{j,t}(x_{t+1}|x_{t})$. Even in nonstationary models, dynamic discrete choice models often assume that $\varepsilon$ has time-invariant distribution conditional on $x_{t}$.
- In applied work, it is also often assumed that $g\left(\varepsilon_{t+1}|x_{t+1}\right)$ is the same across $x_{t+1}\in\mathcal{X}$, $\varepsilon$ has an i.i.d. type 1 extreme value distribution (T1EV).
Preference
- The preference of the optimizing agent are defined over states and actions by an additively separable utility function over time and between the contemporaneous disturbance and the Markovian state variables.
- Utility: per-period utility is characterized by $\bar{u}_{j,t}(x_{t},\varepsilon_{t}):=u_{j,t}(x_{t})+\varepsilon_{j,t}$ where $u_{j,t}(x_{t})$ is the systematic part of per-period utility by taking action $j\in\mathcal{J}$ at $t$.
- Denote the discount factor by $\beta \in (0,1)$.
- To ensure that the transversality condition is satisfied, we assume $\left\{u_{j,t}(x)\right\}_{t=1}^{T}$ is a bounded sequence for each $\left(j,x\right) \in \mathcal{J}\times\mathcal{X}$, and so is:
\begin{equation*} \left\{\int \max \left\{ \left\vert \varepsilon_{1,t}\right\vert, \left\vert \varepsilon_{2,t}\right\vert, \dots, \left\vert\varepsilon_{J,t}\right\vert \right\} g_{t}\left(\varepsilon_{t}|x_{t}\right) d\varepsilon_{t}\right\}_{t=1}^{T} \end{equation*}
At the beginning of each period $t=\left\{1,\ldots ,T\right\}$, the agent observes the realization $\left(x_{t},\varepsilon_{t}\right)$ chooses $d_{t}$ to sequentially maximize the discounted sum of payoffs:
\begin{equation} \mathbb{E}\left\{ \sum_{\tau=t}^{T}\sum_{j=1}^{J}\beta ^{\tau-1}d_{j,\tau }\left[u_{j,\tau }(x_{\tau })+\varepsilon _{j,\tau }\right] \left\vert x_{t},\varepsilon_{t}\right. \right\} \end{equation}
where at each period $t$ the expectation is taken over future realized values $x_{t+1},\ldots,x_{T}$ and $\varepsilon_{t+1},\ldots,\varepsilon_{T}$ conditional on $(x_{t},\varepsilon_{t})$.
In this tutorial, let's consider a model with a renewal choice:
- There is a renewal choice $j\in\mathcal{J}$ such that whenever the renewal choice is chosen, the state is 'reset' to one element in the state space.
- The most popular application of a model with a renewal choice is the bus engine replacement in Rust (1987). In this model, mileage is reset to zero whenever an agent chooses to replace the engine. In Rust (1987), the states only increase.
As an application, I use a simplified application of Arcidiacono and Miller (2011, Ecta).
- Time: $t=1,\ldots,T$
- State:
- Mileage: $x_{1,t}$
- Permanent route characteristic of the bus: $x_2$
- "Unobserved heterogeneity": $s$ (we treat this observed in this tutorial)
- Per-period utility:
- $u_1(x_{1,t})= 0 $
- $u_2(x_{1,t})= \theta_{0} + \theta_{1} \min\{x_{1,t},25\} + \theta_{2} s$
- We normalize the flow utility to zero when the engine is replaced.
- Maintenance costs, represented by $-\theta_1 \min\{x_{1,t},25\}$, increase linearly and then flatten out. Thus, it is redundant to track accumulated mileage beyond 25.
- Transition:
- Mileage accumulates in increments of 0.125 and permanent route characteristic of the bus, $x_2$, is a multiple of 0.01.
- Accumulated mileage depends on the decision to replace the engine, the previous mileage, and the permanent route characteristic of the bus. $$ f_{j}(x_{1,t+1}|x_{t}) = \begin{cases} \exp(-x_{2}(x_{1,t+1}-x_{1,t}))-\exp(-x_2(x_{1,t+1}+0.125-x_{1,t})) &\text{if $j=2$, $x_{1,t+1} \geq x_{1,t}$, $x_{1,t+1}<25$} \\ \exp(-x_{2}(25-x_{1,t}) &\text{if $j=2$ and $x_{t+1} \geq 25$} \\ \exp(-x_{2}(x_{1,t+1}-0)-\exp(-x_2(x_{1,t+1}+0.125-0)) &\text{if $j=1$, $x_{1,t+1} \geq 0$, $x_{1,t+1}<25$} \\ \exp(-x_{2}(25-0)) &\text{if $j=1$ and $x_{t+1} \geq 25$} \\ 0 &\text{otherwise} \end{cases} $$
- i.e., the mileage transitions follow a discrete analog of an exponential distribution defined up to 25.
- $\varepsilon$ follows T1EV.
In [ ]:
# For REPL setting
ENV["LINES"] = 1000; ENV["COLUMNS"] = 250;
## In Julia, you can activate virtual environment you compiled in REPL
using Pkg; Pkg.activate("./")
using Distributed;
addprocs(3; exeflags=`--project=$(Base.active_project())`);
@everywhere begin
using SharedArrays, LinearAlgebra, Optim, ForwardDiff, NLsolve, Ipopt, Zygote,
DataFrames, Printf, Random, Distributions, Statistics, HypothesisTests, TimeSeries, SharedArrays,
Parameters, .MathConstants; # for γ=0.5772...
end
Activating project at `c:\Users\jaepi\OneDrive\Documents\GitHub\Prof_Miller_structural_econometrics\5. Arcidiacono and Miller, 2011 (CCP-EM)`
In [ ]:
# two choices - j=1 replace j=2 continue
J = 2;
x1_min = 0.0 ; x1_max = 25.0; x1_int = 0.125; x1_len = Int64((x1_max-x1_min)/x1_int+1.0);
x2_min = 0.25; x2_max = 1.25; x2_int = 0.01 ; x2_len = Int64((x2_max-x2_min)/x2_int+1.0);
x1 = range(x1_min, x1_max, x1_len);
x2 = range(x2_min, x2_max, x2_len);
# transition matrix
# x_tran : Transition matrix for j=2 only. Note that the size is: |x1| \times |x1| \times |x2|
# x_tran_cumul: cdf for transition matrix. We will use this later.
# x1_next: x1 states for tomorrow. A row-wise repetition of states. Size: |x1| \times |x1|
# x1_tday: x1 states for today. A column-wise repetition of states. Size: |x1| \times |x1|
# x1_zero: matrix of zeros. |x1| \times |x1|
x_tran = zeros((x1_len, x1_len, x2_len));
x_tran_cumul = zeros((x1_len, x1_len, x2_len));
x1_tday = repeat(x1, 1, x1_len); # It's different from Python!
x1_next = x1_tday'; # notice the transpose!
x1_zero = zeros((x1_len, x1_len)); # we use this for computing
for k = 1:x2_len
x_tran[:,:,k] = (x1_next .>= x1_tday) .* exp.(-x2[k] * (x1_next - x1_tday)) .* (1 .- exp(-x2[k] * x1_int)); # j=2 continue
x_tran[:,end,k] = 1 .- sum(x_tran[:,1:(end-1),k], dims=2); # last column is set so that the sum of probs is 1
x_tran_cumul[:,:,k] = cumsum(x_tran[:,:,k], dims=2);
end;
# Note that we only compute the transition matrix for j=2 because
# the transition for j=1 is the first row of the transition matrix for j=2.
# In a more general setting, we have to compute the transition matrix for each j=1 and 2 like below:
# x_tran = zeros((J,x1_len,x1_len,x2_len))
# x_tran_cumul = zeros((J,x1_len,x1_len,x2_len))
# for j in 1:J
# for k in 1:x2_len
# x_tran[j,:,:,k] = (x1_next .>= x1_zero) .* exp(-x2[k] .* (x1_next - x1_zero)) .* (1 .- exp(-x2[k] * x1_int))
# x_tran[j,:,end,k] = 1 .- sum(x_tran[j,:,(1:end-1),k], dims=2)
# x_tran_cumul[j,:,:,k] = cumsum(x_tran[j,:,:,k], dims=2)
In order to generate the data from the specified DGP, we need to solve the individual optimization problem. BackwardInduction is a program that solves the value function of the agent for each state and time.
In [ ]:
# Solve for the ex-ante value function
@everywhere function backward_induction(arguments, theta)
T, S, _, x_tran, _, x1, x1_len, _, x2_len = arguments
value_function = zeros(eltype(theta),x1_len,x2_len,length(S),T+1)
for t in T:-1:1
for s in S
for k in 1:x2_len
for i in 1:x1_len
# replace
u1 = 0.0
v1 = u1 + theta[4] * (x_tran[1,:,k]'value_function[:,k,s,t+1])
# continue
u2 = theta[1] + theta[2] * x1[i] + theta[3] * s
v2 = u2 + theta[4] * (x_tran[i,:,k]'value_function[:,k,s,t+1])
value_function[i,k,s,t] = log(exp(v1)+exp(v2)) + γ
end
end
end
end
return value_function
end;
Now, we are ready to generate the data. We generate N buses with mileage $x_{1t}=0$, route characteristic $x_{2}$, and additional heterogeneity $s$. We simulate the buses and the decision to replace the engine for T periods. We then extract only from periods data_init to T:
In [ ]:
@everywhere function generate_data(N, arguments, theta)
T, S, data_init, x_tran, x_tran_cumul, x1, x1_len, x2, x2_len = arguments;
x1_index = Array{Int32}(ones(N, T+1)); # index #1 means mileage of 0
x2_index = rand(1:x2_len,N); # index: 1-101
simul_x1 = zeros(N,T+1);
simul_x2 = x2[x2_index];
simul_s = (rand(N) .> theta[5]) .+ 1;
simul_d = zeros(N, T); # a panel of decisions
draw_ccp = rand(N, T);
draw_x1 = rand(N, T);
value_function = backward_induction(arguments, theta);
for n in 1:N
for t in 1:T
# j=1 replace
u1 = 0.0
v1 = u1 + theta[4] * x_tran[1,:,x2_index[n]]'value_function[:,x2_index[n],simul_s[n],t+1]
# j=2 continue
u2 = theta[1] + theta[2] * x1[x1_index[n,t]] + theta[3] * simul_s[n]
v2 = u2 + theta[4] * x_tran[x1_index[n,t],:,x2_index[n]]'value_function[:,x2_index[n],simul_s[n],t+1]
# CCP under T1EV epsilon
p1 = exp(v1)/(exp(v1)+exp(v2)) # exp.(v) ./ sum(exp.(v)) for larger J where v is a vector of cvf's
p2 = 1.0-p1
# Simulate t+1
simul_d[n,t] = (draw_ccp[n,t] > p1) + 1 # 1: replace, 2: continue
x1_index[n,t+1] = (simul_d[n,t]==1) * sum((draw_x1[n,t] .> x_tran_cumul[1,:,x2_index[n]])) +
(simul_d[n,t]==2) * sum((draw_x1[n,t] .> x_tran_cumul[x1_index[n,t],:,x2_index[n]])) + 1
simul_x1[n,t+1] = x1[x1_index[n,t+1]]
end
end
# simul_x1_alt = getindex(x1,x1_index) # this works too instead of simul_x1[n,t+1]
data_x1 = simul_x1[:, data_init:T];
data_d = simul_d[:, data_init:T];
data_x2 = repeat(simul_x2, 1, T-data_init+1);
data_s = repeat(simul_s, 1, T-data_init+1);
data_t = repeat(transpose(data_init:T), N,1);
data_x1_index = indexin(data_x1,x1); # So elegant!
data_x2_index = indexin(data_x2,x2);
return data_t, data_x1, data_x2, data_s, data_d, data_x1_index, data_x2_index
end;
FIML finds the structural parameters by:
- Solve the model for a candidate of structural parameters.
- Based on the solution of the model, we compute the log-likelihood based on the data.
- Update our candidate solution.
- Repeat until the log-likelihood is maximized.
log_likelihood_FIMLis the implementation of the FIML estimation. Note that the last parameter, $\beta$, is reparameterized as a function of a real number $x$ such that $\beta(x) = \exp(x) / (1+\exp(x))$ to ensure that $\beta$ is bounded by $[0,1]$.
In [ ]:
@everywhere function log_likelihood_FIML(theta, N, data_set, arguments)
_, _, _, data_s, data_d, data_x1_index, data_x2_index = data_set;
T, S, data_init, x_tran, x_tran_cumul, x1, x1_len, x2, x2_len = arguments;
beta = softmax(theta[4]);
theta_converted = append!(theta[1:(end-1)],beta)
value_function = backward_induction(arguments, theta_converted);
log_likelihood = 0.0;
for t in 1:(T-data_init+1)
for n in 1:N
i = data_x1_index[n,t];
k = data_x2_index[n,t];
s = data_s[n,t];
# replace
u1 = 0.0;
v1 = u1 + beta * (x_tran[1,:,k]'value_function[:,k,s,data_init+t]);
# continue
u2 = theta[1] + theta[2] * x1[i] + theta[3] * s;
v2 = u2 + beta * (x_tran[i,:,k]'value_function[:,k,s,data_init+t]);
denominator = 1.0 + exp(v2-v1);
log_likelihood += (data_d[n,t]==2) * (v2-v1) - log(denominator);
end
end
return -log_likelihood
end;
CCP estimation follows these steps:
- Estimate conditional choice probabilities, $\vec{p}_(x)$
- In this tutorial, This step is done by using a logistic regression of choices with a fully saturated
- Find a pair of sequences of choices that match the ex-ante value functions in the future (say, $\rho$-periods ahead).
- In this example, we know that the transition matrix is independent of a current state when $j=1$ is chosen, i.e., $$ f1(x{1,t+1}|x_{t}) = f1(x{1,t+1}|x_{t}') = \begin{cases}
\end{cases} $$ for all $x_{t}$ and $x_{t}'$. Thus, for each $x_t$, these two sequences of choices will have the same expectation of ex-ante value functions at $t+2$: $$ \begin{cases}\exp(-x_{2}(x_{1,t+1}-0)-\exp(-x_2(x_{1,t+1}+0.125-0)) &\text{if $j=1$, $x_{1,t+1} \geq 0$, $x_{1,t+1}<25$} \\ \exp(-x_{2}(25-0)) &\text{if $j=1$ and $x_{t+1} \geq 25$}
\end{cases} $$ To see this, let's compute the transition probability of $x_{t+2}$ given $x_{t}$ by following the sequences of choices above: $$ f{1}(x{1,t+2})=\sum{x{t+1}}f{1}(x{1,t+2}|x{t+1})f{2}(x{1,t+1}|x{t}) = \sum{x{t+1}}f{1}(x{1,t+2}|x{t+1})f{1}(x{1,t+1}|x{t}')=f{1}(x{1,t+2}) $$ The first and third equality holds because $f_{1}(x_{1,t+2}|x_{t+1})$ is independent of $x_{t+1}$ and $\sum_{x_{t+1}}f_{2}(x_{1,t+1}|x_{t})=\sum_{x_{t+1}}f_{1}(x_{1,t+1}|x_{t}')=1$. This guarantees the two-period-ahead ex-ante value functions to be the same: $$ \sum{x{t+2}}\bar{V}(x{t+2})f{1}(x{t+2}|x{t+1}) = \sum{x{t+1}}\sum{x{t+2}}\bar{V}(x{t+2})f{1}(x{t+2}|x{t+1}) f{2}(x{t+1}|x{t}) = \sum{x{t+1}}\sum{x{t+2}}\bar{V}(x{t+2})f{1}(x{t+2}|x{t+1}) f{1}(x{t+1}|x{t}) = \sum{x{t+2}}\bar{V}(x{t+2})f{1}(x{t+2}|x{t+1}) $$j_t = 2 \rightarrow j_{t+1} = 1 \\ j_t = 1 \rightarrow j_{t+1} = 1
- In this example, we know that the transition matrix is independent of a current state when $j=1$ is chosen, i.e., $$ f1(x{1,t+1}|x_{t}) = f1(x{1,t+1}|x_{t}') = \begin{cases}
- Take difference of the conditional value functions based on the sequences of choices. Estimate the structural parameters using the instances of the difference of the conditional value functions as our moments.
- Let's write down the conditional value functions following each sequence of choices: $$ \begin{cases} j_t = 2 \rightarrow j_{t+1} = 1: &v_{2}(x_t) = u_{2}(x_{t}) + \beta \sum_{x_{t+1}} \bar{V}(x_{t+1}) f_{2}(x_{t+1}|x_{t}) \\ &\quad\quad\;\;\; = u_{2}(x_{t}) + \beta \sum_{x_{t+1}} (v_{1}(x_{t+1})+\psi_{1}(\vec{p}(x_{t+1})))f_{2}(x_{t+1}|x_{t}) \\ &\quad\quad\;\;\; = u_{2}(x_{t}) + \beta \sum_{x_{t+1}} (u_{1}(x_{t+1})+\psi_{1}(\vec{p}(x_{t+1})))f_{2}(x_{t+1}|x_{t}) + \beta^2 \sum_{x_{t+1}}\sum_{x_{t+2}}\bar{V}(x_{t+2})f_{1}(x_{t+2}|x_{t+1}) f_{2}(x_{t+1}|x_{t}) \\ &\quad\quad\;\;\; = \theta_{0} + \theta_{1} \min\{x_{1t},25\} + \theta_{2} s + \beta \sum_{x_{t+1}} (0+\psi_{1}(\vec{p}(x_{t+1})))f_{2}(x_{t+1}|x_{t}) + \beta^2 \sum_{x_{t+1}}\sum_{x_{t+2}}\bar{V}(x_{t+2})f_{1}(x_{t+2}|x_{t+1}) f_{2}(x_{t+1}|x_{t}) \\ &\quad\quad\;\;\; = \theta_{0} + \theta_{1} \min\{x_{1t},25\} + \theta_{2} s + \beta \sum_{x_{t+1}} \psi_{1}(\vec{p}(x_{t+1}))f_{2}(x_{t+1}|x_{t}) + \beta^2 \sum_{x_{t+1}}\sum_{x_{t+2}}\bar{V}(x_{t+2})f_{1}(x_{t+2}|x_{t+1}) f_{2}(x_{t+1}|x_{t}) \\ j_t = 1 \rightarrow j_{t+1} = 1: &v_{1}(x_t) = u_{1}(x_{t}) + \beta \sum_{x_{t+1}} \bar{V}(x_{t+1}) f_{1}(x_{t+1}|x_{t}) \\ &\quad\quad\;\;\; = u_{1}(x_{t}) + \beta \sum_{x_{t+1}} (v_{1}(x_{t+1})+\psi_{1}(\vec{p}(x_{t+1})))f_{1}(x_{t+1}|x_{t}) \\ &\quad\quad\;\;\; = u_{1}(x_{t}) + \beta \sum_{x_{t+1}} (u_{1}(x_{t+1})+\psi_{1}(\vec{p}(x_{t+1})))f_{1}(x_{t+1}|x_{t}) + \beta^2 \sum_{x_{t+1}}\sum_{x_{t+2}}\bar{V}(x_{t+2})f_{1}(x_{t+2}|x_{t+1}) f_{1}(x_{t+1}|x_{t}) \\ &\quad\quad\;\;\; = 0 + \beta \sum_{x_{t+1}} (0+\psi_{1}(\vec{p}(x_{t+1})))f_{1}(x_{t+1}|x_{t}) + \beta^2 \sum_{x_{t+1}}\sum_{x_{t+2}}\bar{V}(x_{t+2})f_{1}(x_{t+2}|x_{t+1}) f_{1}(x_{t+1}|x_{t}) \\ &\quad\quad\;\;\; = \beta \sum_{x_{t+1}} \psi_{1}(\vec{p}(x_{t+1}))f_{1}(x_{t+1}|x_{t}) + \beta^2 \sum_{x_{t+1}}\sum_{x_{t+2}}\bar{V}(x_{t+2})f_{1}(x_{t+2}|x_{t+1}) f_{1}(x_{t+1}|x_{t}) \end{cases} $$ where $\psi_{j}(\vec{p}(x_{t})) := \bar{V}(x_{t}) - v_{j}(x_{t})$. Note that when $\varepsilon$ follows T1EV, $\psi_{j}(\vec{p}(x_{t}))=\gamma - \log p_{j}(x_{t})$. $$ \begin{align*} v_{2}(x_{t}) - v_{1}(x_{t}) &= \theta_{0} + \theta_{1} \min\{x_{1t},25\} + \theta_{2} s + \beta \sum_{x_{t+1}} \psi_{1}(\vec{p}(x_{t+1}))f_{2}(x_{t+1}|x_{t}) - \beta \sum_{x_{t+1}} \psi_{1}(\vec{p}(x_{t+1}))f_{1}(x_{t+1}|x_{t}) \\ v_{2}(x_{t}) - v_{1}(x_{t}) &= (V(x_{t}) - v_{1}(x_{t})) - (V(x_{t}) - v_{2}(x_{t})) = \psi_{1}(\vec{p}(x_{t}))-\psi_{2}(\vec{p}(x_{t})) \end{align*} $$ Now we are ready to estimate the structural parameters by using the restriction below: $$ \begin{align*} \psi_{1}(\vec{p}(x_{t}))-\psi_{2}(\vec{p}(x_{t})) &=\theta_{0} + \theta_{1} \min\{x_{1t},25\} + \theta_{2} s + \beta \sum_{x_{t+1}} \psi_{1}(\vec{p}(x_{t+1}))f_{2}(x_{t+1}|x_{t}) - \beta \sum_{x_{t+1}} \psi_{1}(\vec{p}(x_{t}))f_{1}(x_{t+1}|x_{t}) \\ -\log p_{1}(x_t) + \log p_{2}(x_t) &= \theta_{0} + \theta_{1} \min\{x_{1t},25\} + \theta_{2} s + \beta \sum_{x_{t+1}} (\gamma-\log p_{1}(x_{t+1})) f_{2}(x_{t+1}|x_{t}) - \beta \sum_{x_{t+1}} (\gamma-\log p_{1}(x_{t+1}))f_{1}(x_{t+1}|x_{t}) \\ \frac{\log p_{2}(x_t)}{1-\log p_{2}(x_{t})} &= \theta_{0} + \theta_{1} \min\{x_{1t},25\} + \theta_{2} s + \beta \sum_{x_{t+1}} (\gamma-\log p_{1}(x_{t+1})) (f_{2}(x_{t+1}|x_{t}) - f_{1}(x_{t+1}|x_{t}) ) \end{align*} $$ You will see that this is exactly the same as the logit regression for $j=2$ where regressors are $(1, \min\{x_{1t},25\}s, \sum_{x_{t+1}} (\gamma-\log p_{1}(x_t)) (f_{2}(x_{t+1}|x_{t}) - f_{1}(x_{t+1}|x_{t})))$ and the structural parameters are $(\theta_{0},\theta_{1},\theta_{2},\beta)$. The code below implemnts CCP estimation based on our discussion above.
In [ ]:
@everywhere function softmax(x)
return exp.(x) ./ (1 .+ exp.(x))
end;
@everywhere function logit(x)
return log(x) - log(1-x)
end;
@everywhere function logistic(b,x)
v1 = x * b
return softmax(v1)
end;
# Given data, we compute the beta with logit
@everywhere function wlogit(b, y, X, W=ones(size(X)[1]))
# W is the weight for each observation to the log-likelihood
v1 = X * b;
p1 = softmax(v1)
p2 = 1.0 .- p1
weighted_log_likelihood = W'*((y.==1.0) .* log.(p1) .+ (y.==2.0) .* log.(p2))
return -weighted_log_likelihood
end;
# Use this if you want to bound beta to be [0,1]
# @everywhere function wlogit_bounded_beta(b, y, X, W=ones(size(X)[1]))
# b[end] = exp(b[end])/(1 + exp(b[end]));
# v1 = X * b;
# p1 = softmax(v1)
# p2 = 1.0 .- p1
# weighted_log_likelihood = W'*((y.==1.0) .* log.(p1) .+ (y.==2.0) .* log.(p2))
# return -weighted_log_likelihood
# end;
In [ ]:
@everywhere function ccp_estimation(theta, theta_init, N, data_set, arguments;
rescale=rescale, x_method="quadratic", t_method="quadratic")
@assert x_method=="linear" || x_method=="quadratic" || x_method=="cubic" || x_method=="true_ccp"
"Choose one of 'linear', 'quadratic', 'cubic', and 'true_ccp' for the first-stage estimation of CCP"
@assert (t_method=="none" || t_method=="linear" || t_method=="quadratic" || t_method=="cubic") || x_method=="true_ccp"
"Choose one of 'none', linear', 'quadratic', 'cubic' for t_method if x_method!='true_ccp'"
data_t, data_x1, data_x2, data_s, data_d, data_x1_index, data_x2_index = data_set;
T, S, data_init, x_tran, x_tran_cumul, x1, x1_len, x2, x2_len = arguments;
### FIRST STAGE: CCP ESTIMATION
if x_method == "true_ccp"
# From the true theta
cvf1 = zeros(eltype(theta),x1_len,x2_len,length(S),T+1)
cvf2 = zeros(eltype(theta),x1_len,x2_len,length(S),T+1)
value_function = zeros(eltype(theta),x1_len,x2_len,length(S),T+1)
for t in T:-1:1
for s in S
for k in 1:x2_len
for i in 1:x1_len
# replace
u1 = 0.0
v1 = u1 + theta[4] * (x_tran[1,:,k]'value_function[:,k,s,t+1])
# continue
u2 = theta[1] + theta[2] * x1[i] + theta[3] * s
v2 = u2 + theta[4] * (x_tran[i,:,k]'value_function[:,k,s,t+1])
value_function[i,k,s,t] = log(exp(v1)+exp(v2)) + γ
cvf1[i,k,s,t] = v1
cvf2[i,k,s,t] = v2
end
end
end
end
grid_fv = (γ .- log.(softmax(cvf1.-cvf2)))[:,:,:,data_init:T];
else # Estimate the data
# Data
vec_one = ones(N*(T-data_init+1));
vec_d = vec(data_d' );
vec_s = vec(data_s' );
vec_t = vec(data_t' )./rescale;
vec_x1 = vec(data_x1')./rescale;
vec_x2 = vec(data_x2');
# Regressors for computing future value
grid_one = ones(x1_len * x2_len);
grid_x1 = kron(ones(x2_len), x1)./rescale;
grid_x2 = kron(x2, ones(x1_len));
if x_method=="linear"
data_x = [vec_one vec_x1 vec_x2];
grid_x = [grid_one grid_x1 grid_x2];
elseif x_method=="quadratic"
data_x = [vec_one vec_x1 vec_x2 vec_x1.^2 vec_x1.*vec_x2 vec_x2.^2];
grid_x = [grid_one grid_x1 grid_x2 grid_x1.^2 grid_x1.*grid_x2 grid_x2.^2];
else # "cubic"
data_x = [vec_one vec_x1 vec_x2 vec_x1.^2 vec_x1.*vec_x2 vec_x2.^2 vec_x1.^3 (vec_x1.^2).*vec_x2 vec_x1.*(vec_x2.^2) vec_x2.^3];
grid_x = [grid_one grid_x1 grid_x2 grid_x1.^2 grid_x1.*grid_x2 grid_x2.^2 grid_x1.^3 (grid_x1.^2).*grid_x2 grid_x1.*(grid_x2.^2) grid_x2.^3];
end
if t_method == "none"
data_xst = [data_x vec_s.*data_x];
elseif t_method == "linear"
data_xs = [data_x vec_s.*data_x];
data_xst = [data_xs vec_t.*data_xs];
elseif t_method == "quadratic"
data_xs = [data_x vec_s.*data_x];
data_xst = [data_xs vec_t.*data_xs (vec_t.^2).*data_xs];
else # cubic
data_xs = [data_x vec_s.*data_x];
data_xst = [data_xs vec_t.*data_xs (vec_t.^2).*data_xs (vec_t.^3).*data_xs];
end
# We use this to estimate beta with reverse differentiation
wlogit_b(b) = wlogit(b, vec_d, data_xst)
function wlogit_d!(G, b)
G .= wlogit_b'(b)
end;
beta_ccp_init = zeros(size(data_xst)[2]);
opt_ccp = optimize(wlogit_b, wlogit_d!, beta_ccp_init, BFGS())
# opt_ccp = optimize(b -> wlogit(b, vec_d, data_xst), beta_ccp_init, BFGS(), autodiff = :forward); # Forward differentiation
ccp_hat = opt_ccp.minimizer;
grid_fv = zeros(x1_len,x2_len,length(S),(T-data_init+1))
for t in 1:(T - data_init + 1)
for s in S
time = t + (data_init - 1)
if t_method == "none"
grid_xst = [grid_x s*grid_x];
elseif t_method == "linear"
grid_xst = kron([1 time/rescale], [grid_x s*grid_x]);
elseif t_method == "quadratic"
grid_xst = kron([1 time/rescale (time/rescale)^2], [grid_x s*grid_x]);
else # cubic
grid_xst = kron([1 time/rescale (time/rescale)^2 (time/rescale)^3], [grid_x s*grid_x]);
end
grid_fv[:,:,s,t] = γ .- reshape(log.(logistic(ccp_hat,grid_xst)),x1_len,x2_len)
end
end
end
# Estimate Future Value from the data
data_fv = zeros(N,(T-data_init));
for n = 1:N
for t = 1:(T-data_init)
i = data_x1_index[n,t]
k = data_x2_index[n,t]
s = data_s[n,t]
data_fv[n,t] = (x_tran[i,:,k] - x_tran[1,:,k])'grid_fv[:, k, s, t+1] # be careful about p_(x_{t+1})!
end
end
# construct the data set for structural estimation
vec_one_ccp = ones(N*(T-data_init));
vec_d_ccp = vec(data_d[:, 1:(T-data_init)]');
vec_s_ccp = vec(data_s[:, 1:(T-data_init)]');
vec_x1_ccp = vec(data_x1[:,1:(T-data_init)]');
vec_x2_ccp = vec(data_x2[:,1:(T-data_init)]');
vec_fv_ccp = vec(data_fv[:,1:(T-data_init)]');
data_ccp = [vec_one_ccp vec_x1_ccp vec_s_ccp vec_fv_ccp];
### SECOND STAGE: ESTIMATION FOR STRUCTURAL PARAMETERS
opt_structural = optimize(b -> wlogit(b, 3 .- vec_d_ccp, data_ccp), theta_init, BFGS(), autodiff = :forward) # or ConjugateGradient()
return beta_ccp = opt_structural.minimizer
end
In [ ]:
### Global variables for simulation
T = 30;
S = 1:2; # "unobserved heterogeneity" in AM2011 for s in {1,2}
theta = [2.00, -0.15, 1.0, 0.90, 0.40]; # theta[4] is beta, theta[5] is Pi
data_init = 11; # extract data from periods t = "data_init",...,T
structural_param = append!(theta[1:(end-2)], logit(theta[end-1]));
deviation = randn(length(theta[1:(end-1)])) / length(theta[1:(end-1)]);
theta_init = structural_param + deviation;
rescale = 10.0; # prevents overflow of exp(.)
arguments = T, S, data_init, x_tran, x_tran_cumul, x1, x1_len, x2, x2_len;
In [ ]:
### Monte Carlo Experiment
function monte_carlo(N,MC,arguments,theta_init,theta)
# Result storage
time_CCP_MC = SharedArray{Float64}(MC)
theta_CCP_MC = SharedArray{Float64}(MC,length(theta_init))
time_true_CCP_MC = SharedArray{Float64}(MC)
theta_true_CCP_MC = SharedArray{Float64}(MC,length(theta_init))
time_FIML_MC = SharedArray{Float64}(MC)
theta_FIML_MC = SharedArray{Float64}(MC,length(theta_init))
@sync @distributed for i = 1:MC
data_set = generate_data(N, arguments, theta)
time_CCP_MC[i] = @elapsed theta_CCP_MC[i,:] =
ccp_estimation(theta, theta_init, N, data_set, arguments; rescale=rescale, x_method="quadratic", t_method="quadratic")
time_true_CCP_MC[i] = @elapsed theta_true_CCP_MC[i,:] =
ccp_estimation(theta, theta_init, N, data_set, arguments; rescale=rescale, x_method="true_ccp")
time_FIML_MC[i] = @elapsed opt_FIML_MC =
optimize(theta -> log_likelihood_FIML(theta, N, data_set, arguments), theta_init, BFGS(), autodiff = :forward);
theta_FIML_MC[i,:] = append!(opt_FIML_MC.minimizer[1:3], softmax(opt_FIML_MC.minimizer[4]))
end
return time_CCP_MC, theta_CCP_MC, time_true_CCP_MC, theta_true_CCP_MC, time_FIML_MC, theta_FIML_MC
end;
Random.seed!(42)
N_MC = 1_000; MC = Int64(N/10);
time_CCP_MC, theta_CCP_MC, time_true_CCP_MC, theta_true_CCP_MC, time_FIML_MC, theta_FIML_MC = monte_carlo(N_MC,MC,arguments,theta_init,theta);
In [ ]:
### Bootstrap
function bootstrap(N,Bootstrap,arguments,theta_init,theta,x_method_list,t_method_list)
# Data storage
data_t, data_x1, data_x2, data_s, data_d, data_x1_index, data_x2_index = generate_data(N, arguments, theta)
data_t = convert(SharedArray,data_t);
data_x1 = convert(SharedArray,data_x1);
data_x2 = convert(SharedArray,data_x2);
data_s = convert(SharedArray,data_s);
data_d = convert(SharedArray,data_d);
data_x1_index = convert(SharedArray,Matrix{Int64}(data_x1_index));
data_x2_index = convert(SharedArray,Matrix{Int64}(data_x2_index));
# Result storage
time_CCP_Bootstrap = SharedArray{Float64}(Bootstrap,length(x_method_list),length(t_method_list))
theta_CCP_Bootstrap = SharedArray{Float64}(Bootstrap,length(x_method_list),length(t_method_list),length(theta_init))
time_true_CCP_Bootstrap = SharedArray{Float64}(Bootstrap)
theta_true_CCP_Bootstrap = SharedArray{Float64}(Bootstrap,length(theta_init))
@sync @distributed for i = 1:Bootstrap
sample = rand(1:N,N)
data_set = data_t[sample,:], data_x1[sample,:], data_x2[sample,:], data_s[sample,:], data_d[sample,:],
data_x1_index[sample,:], data_x2_index[sample,:]
for x in 1:length(x_method_list)
for t in 1:length(t_method_list)
time_CCP_Bootstrap[i,x,t] = @elapsed theta_CCP_Bootstrap[i,x,t,:] =
ccp_estimation(theta, theta_init, N, data_set, arguments;
rescale=rescale, x_method=x_method_list[x], t_method=t_method_list[t])
end
end
time_true_CCP_Bootstrap[i] = @elapsed theta_true_CCP_Bootstrap[i,:] =
ccp_estimation(theta, theta_init, N, data_set, arguments; rescale=rescale, x_method="true_ccp")
end
return time_CCP_Bootstrap, theta_CCP_Bootstrap, time_true_CCP_Bootstrap, theta_true_CCP_Bootstrap
end
Random.seed!(42)
N_Bootstrap = 2_000; Bootstrap = Int64(N/10);
x_method_list = ["quadratic", "cubic"]
t_method_list = ["linear", "quadratic", "cubic"]
time_CCP_Bootstrap, theta_CCP_Bootstrap, time_true_CCP_Bootstrap, theta_true_CCP_Bootstrap =
bootstrap(N_Bootstrap,Bootstrap,arguments,theta_init,theta,x_method_list,t_method_list);
In [ ]:
function dgp_result(theta)
print("DGP : ")
for i in 1:(length(theta)-1)
@printf(" b%1.0f ", i)
end
print(" time(min) \n")
print(" : ")
for i in 1:(length(theta)-1)
@printf(" %7.4f ", theta[i])
end
end;
function theta_time(theta,time)
theta_mean = mean(theta,dims=1)
theta_std = std(theta,dims=1)
time_mean = mean(time./60)
time_std = std(time./60)
print("theta_hat : ")
for i in 1:length(theta_mean)
@printf(" %7.4f ", theta_mean[i])
end
@printf(" %7.4f ", time_mean)
print("\n")
print("s_hat : ")
for i in 1:length(theta_std)
@printf(" (%7.4f) ", theta_std[i])
end
@printf(" (%7.4f) ", time_std)
print("\n")
end;
In [ ]:
@printf("Monte Carlo Estimation : FIML vs CCP, N = %i, MC = %i \n", N_MC, MC)
dgp_result(theta)
print("\n")
print("-------------------------------------------------------------------\n")
print("CCP hat : \n")
theta_time(theta_CCP_MC, time_CCP_MC)
print("-------------------------------------------------------------------\n")
print("CCP true : \n")
theta_time(theta_true_CCP_MC, time_true_CCP_MC)
print("-------------------------------------------------------------------\n")
print("FIML : \n")
theta_time(theta_FIML_MC, time_FIML_MC)
Monte Carlo Estimation : FIML vs CCP, N = 5000, MC = 100
DGP : b1 b2 b3 b4 time(min)
: 2.0000 -0.1500 1.0000 0.9000
-------------------------------------------------------------------
CCP hat :
theta_hat : 1.9850 -0.1368 0.9471 0.9304 0.1919
s_hat : ( 0.1321) ( 0.0136) ( 0.0905) ( 0.0719) ( 0.4038)
-------------------------------------------------------------------
CCP true :
theta_hat : 2.0066 -0.1499 0.9993 0.9027 0.3589
s_hat : ( 0.0657) ( 0.0092) ( 0.0495) ( 0.0521) ( 0.0614)
-------------------------------------------------------------------
FIML :
theta_hat : 2.0130 -0.1501 0.9945 0.9003 26.5429
s_hat : ( 0.1022) ( 0.0059) ( 0.0726) ( 0.0258) ( 2.9381)
In [ ]:
@printf("Bootstrap Estimation for CCP, N = %i, Bootstrap = %i \n", N_Bootstrap, Bootstrap)
dgp_result(theta)
for x in 1:length(x_method_list)
for t in 1:length(t_method_list)
print("\n")
print("-------------------------------------------------------------------\n")
print("X: ", x_method_list[x], " T: ", t_method_list[t], "\n")
theta_time(theta_CCP_Bootstrap[:,x,t,:], time_CCP_Bootstrap[:,x,t])
end
end
print("-------------------------------------------------------------------\n")
print("True CCP \n")
theta_time(theta_true_CCP_Bootstrap, time_true_CCP_Bootstrap)
Bootstrap Estimation for CCP, N = 2000, Bootstrap = 100
DGP : b1 b2 b3 b4 time(min)
: 2.0000 -0.1500 1.0000 0.9000
-------------------------------------------------------------------
X: quadratic T: linear
theta_hat : 1.8893 -0.1310 1.0183 0.9672 0.0485
s_hat : ( 0.0837) ( 0.0084) ( 0.0583) ( 0.0475) ( 0.0067)
-------------------------------------------------------------------
X: quadratic T: quadratic
theta_hat : 1.8983 -0.1476 0.9769 0.8569 0.0811
s_hat : ( 0.0788) ( 0.0131) ( 0.0592) ( 0.0804) ( 0.0089)
-------------------------------------------------------------------
X: quadratic T: cubic
theta_hat : 1.9102 -0.1484 0.9647 0.8525 0.1303
s_hat : ( 0.0831) ( 0.0127) ( 0.0594) ( 0.0773) ( 0.0127)
-------------------------------------------------------------------
X: cubic T: linear
theta_hat : 1.8692 -0.1549 1.0897 0.8588 0.1024
s_hat : ( 0.0996) ( 0.0124) ( 0.0797) ( 0.0679) ( 0.0121)
-------------------------------------------------------------------
X: cubic T: quadratic
theta_hat : 1.8735 -0.1662 1.0450 0.7734 0.1747
s_hat : ( 0.0963) ( 0.0144) ( 0.0837) ( 0.0873) ( 0.0174)
-------------------------------------------------------------------
X: cubic T: cubic
theta_hat : 1.8759 -0.1670 1.0358 0.7657 0.3258
s_hat : ( 0.0987) ( 0.0132) ( 0.0827) ( 0.0808) ( 0.0323)
-------------------------------------------------------------------
True CCP
theta_hat : 1.9985 -0.1548 1.0132 0.8935 0.1875
s_hat : ( 0.0510) ( 0.0070) ( 0.0377) ( 0.0390) ( 0.0174)
portfolio
Portfolio item number 1
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Portfolio item number 2
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publications
Paper Title Number 1
Published in Journal 1, 2009
This paper is about the number 1. The number 2 is left for future work.
Recommended citation: Your Name, You. (2009). "Paper Title Number 1." Journal 1. 1(1). http://academicpages.github.io/files/paper1.pdf
Paper Title Number 2
Published in Journal 1, 2010
This paper is about the number 2. The number 3 is left for future work.
Recommended citation: Your Name, You. (2010). "Paper Title Number 2." Journal 1. 1(2). http://academicpages.github.io/files/paper2.pdf
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Published in Journal 1, 2015
This paper is about the number 3. The number 4 is left for future work.
Recommended citation: Your Name, You. (2015). "Paper Title Number 3." Journal 1. 1(3). http://academicpages.github.io/files/paper3.pdf
python
talks
Talk 1 on Relevant Topic in Your Field
Published:
This is a description of your talk, which is a markdown files that can be all markdown-ified like any other post. Yay markdown!
Conference Proceeding talk 3 on Relevant Topic in Your Field
Published:
This is a description of your conference proceedings talk, note the different field in type. You can put anything in this field.
teaching
Constrained Optimization
Additional material, CMU, 2022
Some derivation with T1EV errors
Additional material, CMU, 2022