Estimation with the nested logit model: specifications and software particularities |
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Authors: | Nadja Silberhorn Yasemin Boztuğ Lutz Hildebrandt |
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Affiliation: | (1) Institute of Marketing, Humboldt University Berlin, 10099 Berlin, Germany |
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Abstract: | The paper discusses the nested logit model for choices between a set of mutually exclusive alternatives (e.g. brand choice,
strategy decisions, modes of transportation, etc.). Due to the ability of the nested logit model to allow and account for
similarities between pairs of alternatives, the model has become very popular for the empirical analysis of choice decisions.
However the fact that there are two different specifications of the nested logit model (with different outcomes) has not received
adequate attention. The utility maximization nested logit (UMNL) model and the non-normalized nested logit (NNNL) model have
different properties, influencing the estimation results in a different manner. This paper introduces distinct specifications
of the nested logit model and indicates particularities arising from model estimation. The effects of using various software
packages on the estimation results of a nested logit model are shown using simulated data sets for an artificial decision
situation.
Financial support by the German Research Foundation (DFG) through the research project #BO1952/1 and the SFB 649 “Economic
Risk” is gratefully acknowledged. The authors would like to thank two anonymous reviewers for their helpful and constructive
comments. |
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Keywords: | Nested logit model Utility maximization nested logit Non-normalized nested logit Simulation study |
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