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Mixed Logit and Pure Characteristics Models

Lu, Jay and Saito, Kota (2022) Mixed Logit and Pure Characteristics Models. Social Science Working Paper, 1461. California Institute of Technology , Pasadena, CA. (Unpublished)

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Mixed logit or random coefficients logit models are used extensively in empirical work while pure characteristic models feature in much of theoretical work. We provide a theoretical analysis of the relationship between the two classes of models. First, we show an approximation theorem that precisely characterizes the extent and limitations of mixed logit approximations of pure characteristic models. Second, we present two conditions that highlight novel behavioral differences. The first is a substitutability condition that is satisfied by many pure characteristic models (including models of horizontal differentiation such as Hotelling) but is violated by almost all mixed logit models. The second is a continuity condition that is satisfied by all pure characteristic models but is violated by all mixed logit models. Both conditions pertain to choice patterns when product characteristics change or new products are introduced and illustrate the limitations of using mixed logit models for counterfactual analysis.

Item Type:Report or Paper (Working Paper)
Saito, Kota0000-0003-1189-8912
Additional Information:We thank Giovanni Compiani, Wayne Gao, Yusuke Narita, Matt Shum, Yi Xin and seminar participants at Caltech, Hitsubashi, Academia Sinica and UC Irvine for helpful comments. Financial support from the NSF under awards SES-1558757 (Saito), SES-1919263 (Saito) and SES-1919275 (Lu) are gratefully acknowledged. Jiayin Zhai and Minghao Pan provided outstanding research assistance.
Group:Social Science Working Papers
Funding AgencyGrant Number
Series Name:Social Science Working Paper
Issue or Number:1461
Record Number:CaltechAUTHORS:20220209-001237339
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:113339
Deposited By: Mary Martin
Deposited On:09 Feb 2022 16:49
Last Modified:09 Feb 2022 16:49

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