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Using a Laplace approximation to estimate the random coefficients logit model by non-linear least squares

  • Matthew Harding

    (Institute for Fiscal Studies and Stanford University)

  • Jerry Hausman

    ()

    (Institute for Fiscal Studies and Massachusetts Institute of Technology)

Current methods of estimating the random coefficients logit model employ simulations of the distribution of the taste parameters through pseudo-random sequences. These methods suffer from difficulties in estimating correlations between parameters and computational limitations such as the curse of dimensionality. This paper provides a solution to these problems by approximating the integral expression of the expected choice probability using a multivariate extension of the Laplace approximation. Simulation results reveal that our method performs very well, both in terms of accuracy and computational time. This paper is a revised version of CWP01/06.

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File URL: http://cemmap.ifs.org.uk/wps/cwp2006.pdf
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Paper provided by Centre for Microdata Methods and Practice, Institute for Fiscal Studies in its series CeMMAP working papers with number CWP20/06.

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Length: 30 pp.
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:ifs:cemmap:20/06
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  1. Stephen Ryan & Patrick Bajari & Han Hong, 2005. "Identification and Estimation of Discrete Games of Complete Information," Computing in Economics and Finance 2005 53, Society for Computational Economics.
  2. Pakes, Ariel & Pollard, David, 1989. "Simulation and the Asymptotics of Optimization Estimators," Econometrica, Econometric Society, vol. 57(5), pages 1027-57, September.
  3. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, September.
  4. Beggs, S. & Cardell, S. & Hausman, J., 1981. "Assessing the potential demand for electric cars," Journal of Econometrics, Elsevier, vol. 17(1), pages 1-19, September.
  5. 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.
  6. Hausman, Jerry A & Wise, David A, 1978. "A Conditional Probit Model for Qualitative Choice: Discrete Decisions Recognizing Interdependence and Heterogeneous Preferences," Econometrica, Econometric Society, vol. 46(2), pages 403-26, March.
  7. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-90, July.
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