Publication: A Bayesian Mixed Logit-probit Model for Multinomial Choice

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Title A Bayesian Mixed Logit-probit Model for Multinomial Choice
Authors/Editors* M Burda, M Harding, J Hausman
Where published* Journal of Econometrics
How published* Journal
Year* 2008
Volume 147
Number 2
Pages 232-246
Publisher Elsevier
Keywords Multinomial discrete choice model, Dirichlet Process prior, non-conjugate priors, hierarchical latent class models
In this paper we introduce a new flexible mixed model for multinomial discrete choice where the key individual- and alternative-specific parameters of interest are allowed to follow an assumption-free nonparametric density specification while other alternative-specific coefficients are assumed to be drawn from a multivariate normal distribution which eliminates the independence of irrelevant alternatives assumption at the individual level. A hierarchical specification of our model allows us to break down a complex data structure into a set of submodels with the desired features that are naturally assembled in the original system. We estimate the model using a Bayesian Markov Chain Monte Carlo technique with a multivariate Dirichlet Process (DP) prior on the coefficients with nonparametrically estimated density. We employ a "latent class" sampling algorithm which is applicable to a general class of models including non-conjugate DP base priors. The model is applied to supermarket choices of a panel of Houston households whose shopping behavior was observed over a 24-month period in years 2004-2005. We estimate the nonparametric density of two key variables of interest: the price of a basket of goods based on scanner data, and driving distance to the supermarket based on their respective locations. Our semi-parametric approach allows us to identify a complex multi-modal preference distribution which distinguishes between inframarginal consumers and consumers who strongly value either lower prices or shopping convenience.
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