Does Controlling for Scale Heterogeneity Better Explain Respondents’ Preference Segmentation in Discrete Choice Experiments? A Case Study of US Health Insurance Demand

Abstract

Analyses of preference evidence frequently confuse heterogeneity in the effects of attribute parameters (i.e., taste coefficients) and the scale parameter (i.e., variance). Standard latent class models often produce unreasonable classes with high variance and disordered coefficients because of confounding estimates of effect and scale heterogeneity. In this study, we estimated a scale-adjusted latent class model in which scale classes (heteroskedasticity) were identified using respondents’ randomness in choice behavior on the internet panel (e.g., time to completion and time of day). Hence, the model distinctly explained the taste/preference variation among classes associated with individual socioeconomic characters, in which scales are adjusted. Using data from a discrete-choice experiment on US health insurance demand among single employees, the results demonstrated how incorporating behavioral data enhances the interpretation of heterogeneous effects. Once scale heterogeneity was controlled, we found substantial heterogeneity with 4 taste classes. Two of the taste classes were highly premium sensitive (economy class), coming mostly from the low-income group, and the class associated with better educational backgrounds preferred to have a better quality of coverage of health insurance plans. The third class was a highly quality-sensitive class, with a higher SES background and lower self-stated health condition. The last class was identified as stayers, who were not premium or quality sensitive. This case study demonstrates that one size does not fit all in the analysis of preference heterogeneity. The novel use of behavioral data in the latent class analysis is generalizable to a wide range of health preference studies.