Economics at your fingertips  

Hybrid choice models vs. endogeneity of indicator variables: a Monte Carlo investigation

Wiktor Budziński () and Mikolaj Czajkowski ()
Additional contact information
Wiktor Budziński: University of Warsaw, Faculty of Economic Sciences

No 2018-21, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: We investigate the problem of endogeneity in the context of hybrid choice (integrated choice and latent variable) models. We first provide a thorough analysis of potential causes of endogeneity and propose a working taxonomy. We demonstrate that although it is widely believed that the hybrid choice framework is devoid of the endogeneity problem, there is no theoretical reason to expect that this is the case. We then demonstrate empirically that the problem exists in the hybrid choice framework too. By conducting a Monte Carlo experiment, we display the extent of the bias resulting from measurement and endogeneity biases. Finally, we propose two novel solutions to address the problem: by explicitly accounting for correlation between structural and discrete choice component error terms (or with random parameters in a utility function), or by introducing additional latent variables. Using simulated data, we demonstrate that these approaches work as expected, that is, they result in unbiased estimates of all model parameters.

Keywords: hybrid choice models; endogeneity; measurement bias; attitudinal variables; indicators (search for similar items in EconPapers)
JEL-codes: C35 C51 Q51 R41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ecm and nep-upt
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link) First version, 2018 (application/pdf)

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:

Access Statistics for this paper

More papers in Working Papers from Faculty of Economic Sciences, University of Warsaw Contact information at EDIRC.
Bibliographic data for series maintained by Marcin Bąba ().

Page updated 2019-08-21
Handle: RePEc:war:wpaper:2018-21