A rank-ordered logit model with unobserved heterogeneity in ranking capabilities

Bram van Dijk, Dennis Fok and Richard Paap

No EI 2007-07, Econometric Institute Research Papers from Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute

Abstract: In this paper we consider the situation where one wants to study the preferences of individuals over a discrete choice set through a survey. In the classical setup respondents are asked to select their most preferred option out of a (selected) set of alternatives. It is well known that, in theory, more information can be obtained if respondents are asked to rank the set of alternatives instead. In statistical terms, the preferences can then be estimated more efficiently. However, when individuals are unable to perform (part of) this ranking task, using the complete ranking may lead to a substantial bias in parameter estimates. In practice, one usually opts to only use a part of the reported ranking. In this paper we introduce a latent-class rank-ordered logit model in which we use latent segments to endogenously identify the ranking capabilities of individuals. Each segment corresponds to a different assumption on the ranking capability. Using simulations and an empirical application, we show that using this model for parameter estimation results in a clear efficiency gain over a multinomial logit model in case some individuals are able to rank. At the same time it does not suffer from biases due to ranking inabilities of some of the respondents.

Keywords: discrete choice models; random utility; stated preferences (search for similar items in EconPapers)
JEL-codes: C25 C52 (search for similar items in EconPapers)
Date: 2007-02-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: A RANK‐ORDERED LOGIT MODEL WITH UNOBSERVED HETEROGENEITY IN RANKING CAPABILITIES (2012)
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