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Incorporating Thresholds of Indifference in Probabilistic Choice Models

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  • K. S. Krishnan

    (General Motors Corporation, Warren, Michigan)

Abstract

Probabilistic choice models are often based on utility concepts which call for assessments by decision makers of available alternatives. These models assume that distinct utilities can be derived from the decision maker's expressed preferences. Such an assumption is generally valid if the decision maker can recognize arbitrarily small utility differences. If the decision maker is indifferent between the alternatives the corresponding utilities are expected to be similar. In this paper, the concept of minimum perceivable difference is introduced into the conventional binary logit model. It is postulated that two alternatives are perceived as different only if the absolute difference in their utilities exceeds a positive constant. For estimating the parameters of the new model a maximum likelihood technique is employed, and an empirical test of the model is conducted using data on travelers' choice of mode for accessing commuter rail service from Lindenwold (New Jersey) to downtown Philadelphia. The model predicts individuals' choices in a holdout sample significantly better than the conventional logit model.

Suggested Citation

  • K. S. Krishnan, 1977. "Incorporating Thresholds of Indifference in Probabilistic Choice Models," Management Science, INFORMS, vol. 23(11), pages 1224-1233, July.
  • Handle: RePEc:inm:ormnsc:v:23:y:1977:i:11:p:1224-1233
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    File URL: http://dx.doi.org/10.1287/mnsc.23.11.1224
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    Cited by:

    1. Bahamonde-Birke, Francisco J. & Navarro, Isidora & Ortúzar, Juan de Dios, 2017. "If you choose not to decide, you still have made a choice," Journal of choice modelling, Elsevier, vol. 22(C), pages 13-23.
    2. Obermeyer, Andy & Treiber, Martin & Evangelinos, Christos, 2015. "On the identification of thresholds in travel choice modelling," Journal of choice modelling, Elsevier, vol. 17(C), pages 1-9.
    3. Wayne DeSarbo & Kamel Jedidi & Joel Steckel, 1991. "A stochastic multidimensional scaling procedure for the empirical determination of convex indifference curves for preference/choice analysis," Psychometrika, Springer;The Psychometric Society, vol. 56(2), pages 279-307, June.
    4. Cantillo, Víctor & Amaya, Johanna & Ortúzar, J. de D., 2010. "Thresholds and indifference in stated choice surveys," Transportation Research Part B: Methodological, Elsevier, vol. 44(6), pages 753-763, July.
    5. Obermeyer Andy & Wieland Bernhard & Evangelinos Christos, 2014. "Die ökonomische Bewertung kleiner Reisezeiteinsparungen / The Economic Valuation of Small Travel Time Savings," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 234(1), pages 44-69, February.
    6. Di, Xuan & Liu, Henry X., 2016. "Boundedly rational route choice behavior: A review of models and methodologies," Transportation Research Part B: Methodological, Elsevier, vol. 85(C), pages 142-179.
    7. repec:kap:transp:v:44:y:2017:i:5:d:10.1007_s11116-016-9699-1 is not listed on IDEAS
    8. repec:spr:annopr:v:257:y:2017:i:1:d:10.1007_s10479-015-1817-5 is not listed on IDEAS
    9. repec:eee:touman:v:62:y:2017:i:c:p:335-349 is not listed on IDEAS
    10. Cantillo, Víctor & Heydecker, Benjamin & de Dios Ortúzar, Juan, 2006. "A discrete choice model incorporating thresholds for perception in attribute values," Transportation Research Part B: Methodological, Elsevier, vol. 40(9), pages 807-825, November.

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