Integrated mixed logit and latent variable models

Abstract

Extending the traditional discrete choice model by incorporating latent psychological factors can help to better understand the individual’s decision-making process and therefore to yield more reliable part-worth estimates and market share predictions. Several integrated choice and latent variable (ICLV) models which merge the conditional logit model with a structural equation model exist in the literature. They assume homogeneity in the part-worths and use latent variables to model the heterogeneity among the respondents. This paper starts from the mixed logit model that describes the heterogeneity in the part-worths and uses the latent variables to decrease the unexplained part of the heterogeneity. The empirical study presented here shows these ICLV models perform very well with respect to model fit and prediction.