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A Monte Carlo study of tests for the independence of irrelevant alternatives property

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  • Fry, Tim R. L.
  • Harris, Mark N.

Abstract

A plethora of tests for the Independence of Irrelevant Alternatives (IIA) property of Logit models of discrete choice behavior has been proposed in the literature. These tests are based upon asymptotic arguments and little is known about their size and power properties in finite samples. This paper uses a Monte Carlo simulation study to investigate the size and power properties of six tests for IIA in the multinomial Logit model. Our results show that the majority of tests based upon partitioning the choice set appear to have very poor size and power properties in small samples. Tests for IIA based upon the DOGIT model, similarly have poor size properties, but in some circumstances do have reasonable power properties.

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Bibliographic Info

Article provided by Elsevier in its journal Transportation Research Part B: Methodological.

Volume (Year): 30 (1996)
Issue (Month): 1 (February)
Pages: 19-30

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Handle: RePEc:eee:transb:v:30:y:1996:i:1:p:19-30

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References

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  1. Tse, Y K, 1989. "A Proportional Random Utility Approach to Qualitative Response Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 7(1), pages 61-65, January.
  2. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
  3. Hausman, Jerry & McFadden, Daniel, 1984. "Specification Tests for the Multinomial Logit Model," Econometrica, Econometric Society, vol. 52(5), pages 1219-40, September.
  4. Small, Kenneth A & Hsiao, Cheng, 1985. "Multinomial Logit Specification Tests," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 26(3), pages 619-27, October.
  5. Bordley, Robert F., 1990. "The dogit model is applicable even without perfectly captive buyers," Transportation Research Part B: Methodological, Elsevier, vol. 24(4), pages 315-323, August.
  6. Gaudry, Marc J. I. & Wills, Michael J., 1979. "Testing the dogit model with aggregate time-series and cross-sectional travel data," Transportation Research Part B: Methodological, Elsevier, vol. 13(2), pages 155-166, June.
  7. Tse, Y K, 1987. "A Diagnostic Test for the Multinomial Logit Model," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(2), pages 283-86, April.
  8. Gaundry, Marc J. I. & Dagenais, Marcel G., 1979. "The dogit model," Transportation Research Part B: Methodological, Elsevier, vol. 13(2), pages 105-111, June.
  9. Fry, T R L, et al, 1993. "Economic Motivations for Limited Dependent and Qualitative Variable Models," The Economic Record, The Economic Society of Australia, vol. 69(205), pages 193-205, June.
  10. Horowitz, Joel, 1981. "Identification and diagnosis of specification errors in the multinomial logit model," Transportation Research Part B: Methodological, Elsevier, vol. 15(5), pages 345-360, October.
  11. Swait, Joffre & Ben-Akiva, Moshe, 1987. "Incorporating random constraints in discrete models of choice set generation," Transportation Research Part B: Methodological, Elsevier, vol. 21(2), pages 91-102, April.
  12. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
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Citations

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Cited by:
  1. Tao, Hung-Lin, 2014. "Height, weight, and entry earnings of female graduates in Taiwan," Economics & Human Biology, Elsevier, vol. 13(C), pages 85-98.
  2. Sarah Brown & Lisa Farrell & Mark N. Harris & John G. Sessions, 2006. "Risk preference and employment contract type," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 169(4), pages 849-863.
  3. Schwanen, Tim & Mokhtarian, Patricia L., 2005. "What Affects Commute Mode Choice: Neighborhood Physical Structure or Preferences Toward Neighborhoods?," University of California Transportation Center, Working Papers qt4nq9r1c9, University of California Transportation Center.
  4. Bartolj, Tjaša & Polanec, Sašo, 2012. "College major choice and ability: Why is general ability not enough?," Economics of Education Review, Elsevier, vol. 31(6), pages 996-1016.
  5. Xueyan Zhao & Mark Harris & Preety Ramful, 2004. "Alcohol Consumption in Australia: An Application of the Ordered Generalised Extreme Value Model," Econometric Society 2004 Australasian Meetings 301, Econometric Society.
  6. J. M. C. Santos Silva, 2001. "A score test for non-nested hypotheses with applications to discrete data models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(5), pages 577-597.
  7. Vijverberg, Wim P., 2011. "Testing for IIA with the Hausman-McFadden Test," IZA Discussion Papers 5826, Institute for the Study of Labor (IZA).
  8. Vargas, Enver, 2012. "El impacto del gasto público sobre el proceso de migración interna: Evidencia empírica para el periodo 2002-2007," Revista Estudios Económicos, Banco Central de Reserva del Perú, issue 23, pages 67-81.
  9. Mokhtarian, Patricia L. & Bagley, Michael N., 2000. "Modeling employees' perceptions and proportional preferences of work locations: the regular workplace and telecommuting alternatives," Transportation Research Part A: Policy and Practice, Elsevier, vol. 34(4), pages 223-242, May.
  10. Erik Stam & Roy Thurik & Peter van der Zwan, 2008. "Entrepreneurial Exit in Real and Imagined Markets," Tinbergen Institute Discussion Papers 08-031/3, Tinbergen Institute, revised 07 Dec 2009.

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