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Discrete choice models with multiplicative error terms

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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.

OriginalsprogEngelsk
TidsskriftTransportation Research Part B: Methodological
Vol/bind43
Udgave nummer5
Sider (fra-til)494-505
Antal sider12
ISSN0191-2615
DOI
StatusUdgivet - jun. 2009

ID: 181872770