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Outlier‐Robust Bayesian Multinomial Choice Modeling
Author(s) -
Benoit Dries F.,
Van Aelst Stefan,
Van den Poel Dirk
Publication year - 2015
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.2482
Subject(s) - outlier , econometrics , multinomial distribution , robustness (evolution) , leverage (statistics) , bayesian probability , computer science , statistics , multivariate statistics , bayesian inference , mathematics , artificial intelligence , biochemistry , chemistry , gene
Summary A Bayesian method for outlier‐robust estimation of multinomial choice models is presented. The method can be used for both correlated as well as uncorrelated choice alternatives and guarantees robustness towards outliers in the dependent and independent variables. To account for outliers in the response direction, the fat‐tailed multivariate Laplace distribution is used. Leverage points are handled via a shrinkage procedure. A simulation study shows that estimation of the model parameters is less influenced by outliers compared to non‐robust alternatives. An analysis of margarine scanner data shows how our method can be used for better pricing decisions. Copyright © 2015 John Wiley & Sons, Ltd.