Among the many attractive features of the mixed logit model is its ability to take account of taste variation among decision-makers by allowing coefficients to follow pre-specified distributions (usually normal or lognormal). Whilst accounting for heterogeneity in the population, simple applications of the technique fail to identify valuable information on differences in behaviour between market segments. This information is likely to be of use to those involved in policy and investment analysis, product design and marketing. The 'standard' approach to overcome this problem when working with the mixed logit model is to identify segments prior to modelling and either specify a set of constant coefficients for each market segment together with an additional error term to 'mop-up' any residual variation, or by allowing separate distributions for each market segment. An alternative approach is to adapt a new methodology that offers the ability to estimate reliable individual specific parameters. This approach involves three key stages: first use maximum simulated likelihood to estimate distributions of tastes across the population; next examine individual's choices to arrive at estimates of their parameters, conditional on known distributions across the population (including accounting for uncertainty in the population estimates); and finally, differences in behaviour between market segments are identified by regressing individual 'part-worths' against the characteristics of the decision-maker or attributes of the choice alternatives. In the first instance the technique is validated under 'controlled' circumstances on a simulated data set with known taste distributions. This simulation involves a binary choice situation in which the alternatives are described in terms of time and cost. The choices of two sets of individuals are simulated with the first group having a value of time distributed around a relatively low value and the second group simulated with a value of time distributed around a relatively high value. The resulting bimodal distribution of the value of time is then analysed and individual values recovered with a surprisingly high degree of precision. Following a successful validation of the technique on simulated data, the methodology is applied to data from two stated preference experiments in which 326 respondents were asked to choose between alternate motor vehicle specifications defined by purchase price, running costs, engine size, emissions and safety features. The results of this analysis are compared to the findings of previously calibrated GEV models that identified significant differences in tastes across market segments. For the covering abstract see ITRD E126595.
Abstract