From dc838f1e799ee58b1cf04d74bcbbe734e3702be5 Mon Sep 17 00:00:00 2001 From: LiminMHuang <118611795+LiminMHuang@users.noreply.github.com> Date: Thu, 7 Mar 2024 20:50:46 +0000 Subject: [PATCH] Update nested_logit.md Outcomes within each nest are correlated, so they do not satisfy IIA. On the other hand, outcomes across nests are not correlated since the stochastic part of the error component will disappear if two outcomes are not in the same nest. Thus outcomes across nests satisfy IIA. --- Model_Estimation/GLS/nested_logit.md | 2 +- 1 file changed, 1 insertion(+), 1 deletion(-) diff --git a/Model_Estimation/GLS/nested_logit.md b/Model_Estimation/GLS/nested_logit.md index 62f923dc..87ecef0c 100644 --- a/Model_Estimation/GLS/nested_logit.md +++ b/Model_Estimation/GLS/nested_logit.md @@ -8,7 +8,7 @@ mathjax: TRUE A nested logistical regression (nested logit, for short) is a statistical method for finding a best-fit line when the the outcome variable $Y$ is a binary variable, taking values of 0 or 1. Logit regressions, in general, follow a [logistical distribution](https://en.wikipedia.org/wiki/Logistical_distribution) and restrict predicted probabilities between 0 and 1. -Traditional logit models require that the [Independence of Irrelevant Alternatives(IIA)](https://en.wikipedia.org/wiki/Independence_of_irrelevant_alternatives) property holds for all possible outcomes of some process. Nested logit models differ by allowing 'nests' of outcomes that satisfy IIA within them, but not requiring that all outcomes jointly satisfy IIA. +Traditional logit models require that the [Independence of Irrelevant Alternatives(IIA)](https://en.wikipedia.org/wiki/Independence_of_irrelevant_alternatives) property holds for all possible outcomes of some process. Nested logit models differ by allowing 'nests' of outcomes that satisfy IIA, but not requiring that all outcomes jointly satisfy IIA. For an example of violating the IIA property, see [Red Bus/Blue Bus Paradox.](https://en.wikipedia.org/wiki/Independence_of_irrelevant_alternatives#Criticisms_of_the_IIA_assumption)