Publications
Publications
- 2008
- HBS Working Paper Series
Taste Heterogeneity, IIA, and the Similarity Critique
By: Thomas J. Steenburgh and Andrew Ainslie
Abstract
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.
Keywords
Citation
Steenburgh, Thomas J., and Andrew Ainslie. "Taste Heterogeneity, IIA, and the Similarity Critique." Harvard Business School Working Paper, No. 09-049, September 2008.