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Estimation with the nested logit model: Specifications and software particularities

Author

Listed:
  • Silberhorn, Nadja
  • Boztuğ, Yasemin
  • Hildebrandt, Lutz

Abstract

The paper discusses the nested logit model for choices between a set of mutually exclusive alternatives (e.g. brand choice, strategy decisions, modes of transportation, etc.). Due to the ability of the nested logit model to allow and account for similarities between pairs of alternatives, the model has become very popular for the empirical analysis of choice decisions. However the fact that there are two different specifications of the nested logit model (with different outcomes) has not received adequate attention. The utility maximization nested logit (UMNL) model and the non-normalized nested logit (NNNL) model have different properties, influencing the estimation results in a different manner. This paper introduces distinct specifications of the nested logit model and indicates particularities arising from model estimation. The effects of using various software packages on the estimation results of a nested logit model are shown using simulated data sets for an artificial decision situation.

Suggested Citation

  • Silberhorn, Nadja & Boztuğ, Yasemin & Hildebrandt, Lutz, 2007. "Estimation with the nested logit model: Specifications and software particularities," SFB 649 Discussion Papers 2007-046, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    • Handle: RePEc:zbw:sfb649:sfb649dp2007-046
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    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing

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