Munich Personal RePEc Archive

Circumventing the problem of the scale: discrete choice models with multiplicative error terms

Fosgerau, Mogens and Bierlaire, Michel (2007): Circumventing the problem of the scale: discrete choice models with multiplicative error terms.

WarningThere is a more recent version of this item available.
[img]
Preview
PDF
MPRA_paper_3901.pdf

Download (328kB) | Preview

Abstract

We 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.

Available Versions of this Item

UB_LMU-Logo
MPRA is a RePEc service hosted by
the Munich University Library in Germany.