Circumventing the problem of the scale: discrete choice models with multiplicative error terms
AbstractWe propose a multiplicative specification of a discrete choice model that renders choice probabilities independent of the scale of the utility. The scale can thus be random with unspecified distribution. The model mostly outperforms the classical additive formulation over a range of stated choice data sets. In some cases, the improvement in likelihood is greater than that obtained from adding observed and unobserved heterogeneity to the additive specification. The multiplicative specification makes it unnecessary to capture scale heterogeneity and, consequently, yields a significant potential for reducing model complexity in the presence of heteroscedasticity. Thus the proposed multiplicative formulation should be a useful supplement to the techniques available for the analysis of discrete choices. There is however a cost to be paid in terms of increased analytical complexity relative to the additive formulations.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 3901.
Date of creation: 03 Jul 2007
Date of revision:
Multivariate extreme value; logsum;
Find related papers by JEL classification:
- C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-07-13 (All new papers)
- NEP-DCM-2007-07-13 (Discrete Choice Models)
- NEP-ECM-2007-07-13 (Econometrics)
- NEP-UPT-2007-07-13 (Utility Models & Prospect Theory)
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