Taste Heterogeneity, IIA, and the Similarity Critique
AbstractThe purpose of this paper is to show that allowing for taste heterogeneity does not address the similarity critique of discrete-choice models. Although IIA may technically be broken in aggregate, the mixed logit model allows neither a given individual nor the population as a whole to behave with perfect substitution when facing perfect substitutes. Thus, the mixed logit model implies that individuals behave inconsistently across choice sets. Estimating the mixed logit on data in which individuals do behave consistently can result in biased parameter estimates, with the individuals' tastes for desirable attributes being systemically undervalued.
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Bibliographic InfoPaper provided by Harvard Business School in its series Harvard Business School Working Papers with number 09-049.
Length: 26 pages
Date of creation: Sep 2008
Date of revision:
Heterogeneity; Mixed Logit; Independence from Irrelevant Alternatives; IIA; Similarity Critique; Ecological Fallacy;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-07 (All new papers)
- NEP-DCM-2008-10-07 (Discrete Choice Models)
- NEP-ECM-2008-10-07 (Econometrics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Brownstone, David & Train, Kenneth, 1999.
"Forecasting new product penetration with flexible substitution patterns,"
University of California Transportation Center, Working Papers
qt3tb6j874, University of California Transportation Center.
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- David Revelt & Kenneth Train, 1998. "Mixed Logit With Repeated Choices: Households' Choices Of Appliance Efficiency Level," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 647-657, November.
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