Bayesian estimation of a simultaneous probit model using error augmentation: An application to multi-buying and churning behavior

Subramanian Balachander () and Bikram Ghosh ()
Additional contact information
Subramanian Balachander: Purdue University
Bikram Ghosh: University of South Carolina

Quantitative Marketing and Economics (QME), 2013, vol. 11, issue 4, No 3, 437-458

Abstract: Abstract Researchers in marketing are often interested in analyzing how an agent’s discrete choice decision affects a subsequent or concurrent discrete choice decision by the same or different agent. This analysis may necessitate the use of a simultaneous equations model with discrete and continuous endogenous variables as explanatory variables. In this paper, we offer an error augmentation approach to Hierarchical Bayesian estimation of a simultaneous bivariate probit model containing both discrete and continuous endogenous variables. We accomplish the error augmentation in our MCMC algorithm using a Metropolis-Hastings step that generates the error components of the latent variables in our model. Using simulated data, we demonstrate that our error augmentation algorithm recovers closely the true parameters of the simultaneous bivariate probit model. We then apply our algorithm to customer churn data from a wireless service provider. We formulate a simultaneous bivariate probit model to study the impact of a customer’s multiple product relationships with a firm (multi-buying) on the likelihood of churn by that customer. The empirical results show that the act of multi-buying significantly reduces churn even though the customers who are more predisposed to multi-buy have an inherently higher predisposition to churn.

Keywords: Simultaneous probit model; Error augmentation; Hierarchical Bayesian estimation; Monte Carlo Markov Chain Algorithm; Customer retention; Customer churn; Customer relationship management (search for similar items in EconPapers)
JEL-codes: C11 C35 M31 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11129-013-9137-z Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:qmktec:v:11:y:2013:i:4:d:10.1007_s11129-013-9137-z

Ordering information: This journal article can be ordered from
http://www.springer. ... ng/journal/11129/PS2

DOI: 10.1007/s11129-013-9137-z

Access Statistics for this article

Quantitative Marketing and Economics (QME) is currently edited by Pradeep Chintagunta

More articles in Quantitative Marketing and Economics (QME) from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().