Newman, J. P (2009)

Systematically heterogeneous covariance in network GEV models

International Choice Modelling Conference, Harrogate, UK

Mixed logit models can represent heterogeneity across individuals, in both observed and unobserved preferences, but require computationally expensive calculations to compute probabilities. A few methods for including error covariance heterogeneity in a closed form models have been proposed, and this paper adds to that collection, introducing a new form of a Network GEV model that sub-parameterizes the allocation values for the assignment of alternatives (and sub-nests) to nests. This change allows the incorporation of systematic (non-random) error covariance heterogeneity across individuals, while maintaining a closed form for the calculation of choice probabilities. Also explored is a latent class model of nested models, which can similarly express heterogeneity. The heterogeneous models are compared to a similar model with homogeneous covariance in a realistic scenario, and are shown to significantly outperform the homogeneous model, and the level of improvement is especially large in certain market segments. The results also suggest that the two heterogeneous models introduced herein may be functionally equivalent.