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Testing for IIA with the Hausman-McFadden Test

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  • Vijverberg, Wim P.

    (CUNY Graduate Center)

Abstract

The Independence of Irrelevant Alternatives assumption inherent in multinomial logit models is most frequently tested with a Hausman-McFadden test. As is confirmed by many findings in the literature, this test sometimes produces negative outcomes, in contradiction of its asymptotic ?² distribution. This problem is caused by the use of an improper variance matrix and may lead to an invalid statistical inference even when the test value is positive. With a correct specification of the variance, the sampling distribution for small samples is indeed close to a ?² distribution.

Suggested Citation

  • Vijverberg, Wim P., 2011. "Testing for IIA with the Hausman-McFadden Test," IZA Discussion Papers 5826, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp5826
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    References listed on IDEAS

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    1. Hausman, Jerry & McFadden, Daniel, 1984. "Specification Tests for the Multinomial Logit Model," Econometrica, Econometric Society, vol. 52(5), pages 1219-1240, September.
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    7. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555.
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    9. Wim P. M. Vijverberg, 1993. "Educational Investments and Returns for Women and Men in Côte d'Ivoire," Journal of Human Resources, University of Wisconsin Press, vol. 28(4), pages 933-974.
    10. Small, Kenneth A., 1994. "Approximate generalized extreme value models of discrete choice," Journal of Econometrics, Elsevier, vol. 62(2), pages 351-382, June.
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    12. Junsen Zhang & Saul D. Hoffman, 1993. "Discrete-Choice Logit Models," Sociological Methods & Research, , vol. 22(2), pages 193-213, November.
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    Cited by:

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    More about this item

    Keywords

    multinomial logit; IIA assumption; Hausman-McFadden test;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C35 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions

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