TY - JOUR
T1 - Discrete choice models with multiplicative error terms
AU - Fosgerau, M.
AU - Bierlaire, Michel
PY - 2009/6
Y1 - 2009/6
N2 - 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.
AB - 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.
KW - Discrete choice
KW - Heteroscedasticity
KW - Multiplicative specification
KW - Multivariate extreme value
KW - Random scale
UR - http://www.scopus.com/inward/record.url?scp=62849093896&partnerID=8YFLogxK
U2 - 10.1016/j.trb.2008.10.004
DO - 10.1016/j.trb.2008.10.004
M3 - Journal article
AN - SCOPUS:62849093896
SN - 0191-2615
VL - 43
SP - 494
EP - 505
JO - Transportation Research Part B: Methodological
JF - Transportation Research Part B: Methodological
IS - 5
ER -