Fosgerau, M., and Bierlaire, M. (2009)

Discrete choice models with multiplicative error terms, Transportation Research Part B: Methodological 43(5):494-505.

The conditional indirect utility of many random utility maximization (RUM) discrete choice models is specified as a sum of an index V depending on observables and an independent random term. In general, the universe of RUM consistent models is much larger, even fixing some specification of V due to theoretical and practical considerations. In this paper, we explore an alternative RUM model where the summation of V and the error term is replaced by multiplication. This is consistent with the notion that choice makers may sometimes evaluate relative differences in V between alternatives rather than absolute differences. We develop some properties of this type of model and show that in several cases the change from an additive to a multiplicative formulation, maintaining a specification of V, may lead to a large improvement in fit, sometimes larger than that gained from introducing random coefficients in V.

doi:10.1016/j.trb.2008.10.004 (click here for the full paper)