Taste heterogeneity, IIA, and the similarity critique
By: Thomas J. Steenburgh and Andrew Ainslie
Contributors: Ainslie, Andrew; Harvard Business School
Series: Working paper / Harvard Business School -- 09-049; Working paper (Harvard Business School) -- 09-049
Publisher: Harvard Business School
Published: 2008
Place of publication: Boston
Language: eng
Number of pages: 26
Description: The purpose of this paper is to show that allowing for taste heterogeneity does not address the similarity critique of discrete-choice models. Although IIA may technically be broken in aggregate, the mixed logit model allows neither a given individual nor the population as a whole to behave with perfect substitution when facing perfect substitutes. Thus, the mixed logit model implies that individuals behave inconsistently across choice sets. Estimating the mixed logit on data in which individuals do behave consistently can result in biased parameter estimates, with the individuals' tastes for desirable attributes being systemically undervalued.
Notes: "September 2008"--Publisher's web site.

Includes bibliographical references.