Discrete choice models with multiplicative error terms

Mogens Fosgerau, Michel Bierlaire

    Research output: Contribution to journalJournal articleResearchpeer-review

    Abstract

    The conditional indirect utility of many random utility maximization (RUM) discrete choice models is specified as a sum of an index V depending on observables and an independent random term ε. In general, the universe of RUM consistent models is much larger, even fixing some specification of V due to theoretical and practical considerations. In this paper, we explore an alternative RUM model where the summation of V and ε is replaced by multiplication. This is consistent with the notion that choice makers may sometimes evaluate relative differences in V between alternatives rather than absolute differences. We develop some properties of this type of model and show that in several cases the change from an additive to a multiplicative formulation, maintaining a specification of V, may lead to a large improvement in fit, sometimes larger than that gained from introducing random coefficients in V.
    Original languageEnglish
    JournalTransportation Research. Part B: Methodological
    Volume43
    Issue number5
    Pages (from-to)494-505
    ISSN0191-2615
    DOIs
    Publication statusPublished - 2009

    Keywords

    • Random scale
    • Multivariate extreme value
    • Discrete choice
    • Multiplicative specification
    • Heteroscedasticity

    Fingerprint Dive into the research topics of 'Discrete choice models with multiplicative error terms'. Together they form a unique fingerprint.

    Cite this