An argument for preferring Firth bias-adjusted estimates in aggregate and individual-level discrete choice modeling

Roselinde Kessels, Bradley Jones and Peter Goos ()

Working Papers from University of Antwerp, Faculty of Business and Economics

Abstract: Using maximum likelihood estimation for discrete choice modeling of small datasets causes two problems. The first problem is that the data often exhibit separation, in which case the maximum likelihood estimates do not exist. Also, provided they exist, the maximum likelihood estimates are biased. In this paper, we show how to adapt Firth's bias-adjustment method for use in discrete choice modeling. This approach removes the first-order bias of the estimates, and it also deals with the separation issue. An additional advantage of the bias adjustment is that it is usually accompanied by a reduction in the variance. Using a large-scale simulation study, we identify the situations where Firth's bias-adjustment method is most useful in avoiding the problem of separation as well as removing the bias and reducing the variance. As a special case, we apply the bias-adjustment approach to discrete choice data from individuals, making it possible to construct an empirical distribution of the respondents' preferences without imposing any a priori population distribution. For both research purposes, we base our findings on data from a stated choice study on various forms of employee compensation.

Keywords: Discrete choice modeling; Firth's bias adjustment; Penalized maximum likelihood; Individual-level estimates; Data separation (search for similar items in EconPapers)
Pages: 38 pages
Date: 2013-08
New Economics Papers: this item is included in nep-dcm and nep-ecm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://repository.uantwerpen.be/docman/irua/f0a9c0/c584d201.pdf (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: https://EconPapers.repec.org/RePEc:ant:wpaper:2013013

Access Statistics for this paper

More papers in Working Papers from University of Antwerp, Faculty of Business and Economics Contact information at EDIRC.
Bibliographic data for series maintained by Joeri Nys ().