Model

 yi* = latent index of reported health

Lecture 7: Multinomial Logit  The latent index measures your own scale of health.
Once yi* crosses a certain value you report poor,
Model (MNL) then good, then very good, then excellent health

Ordered Probabilities
3

 yi = (1,2,3,4,5) for (fair, poor, VG, G, excel)

 Interval decision rule Prob[y=j]=Prob[ j-1  y*   j ]
= Prob[ j-1  βx     j ]
 yi=1 if yi* ≤ u1 = Prob[βx     j ]  Prob[βx     j1 ]
 yi=2 if u1 < yi* ≤ u2 = Prob[   j  βx ]  Prob[   j1  βx ]
 yi=3 if u2 < yi* ≤ u3
= F[ j  βx ]  F[ j1  βx ]
 yi=4 if u3 < yi* ≤ u4
 yi=5 if yi* > u4 where F[] is the CDF of .
 Probabilities for Ordered Choices
6

 We assume yi* is a function of observed and

unobserved variables

 yi* = β0 + x1i β1 + x2i β2 …. xki βk + εi

 yi* = xi β + εi

μ1 =1.1479 μ2 =2.5478 μ3 =3.0564

Likelihood function R Example

7

 There are 5 possible choices for each person library (MASS)

 Only 1 is observed orderedLogitModel <- polr (orderedResponse ~ pred1 + pred2
+ pred3, data=inputData, Hess=TRUE) # ordered logit
 L = Σi ln[Pr(yi=k)] for k summary (orderedLogitModel) # view a summary of the model

orderedProbitModel <- polr (orderedResponse ~ pred1 +

pred2 + pred3, data=inputData, method="probit") # ordered
probit

predict (orderedLogitModel, newData, type = "p") # predict on

new data
 Multinomial Logit Model Multinomial Logit Model
10

 Each mode is assigned a value. This value is usually  Utility Function

referred to as Utility Value. Larger utility value
means this mode has larger chance to be chosen.
Ui  Vi   i
 Since travelers usually do not have perfect
information about each mode. The utility values are
random variables instead of constants. U i  bi 0  bi1 xi1  ....  bin xin   i

Utility value of mode i is: Ui random

Observed portion of utility portion of
utility
Vi  bi 0  bi1 xi1  ....  bin xin
9

Multinomial Logit Model Random Portion -- PDF

11 12

 Random Portion

U i  bi 0  bi1 xi1  ....  bin xin   i

random portion of utility

PDF: f  i   e  i  e e  i 

CDF: F  i   e e  i 

 Random Portion -- CDF Multinomial Logit Model
13

Pi  P U i  U j   P Vi   i  V j   j  j i
Vi  bi 0  bi1xi1  ....  bin xin

14

Multinomial Logit Model Multinomial Logit Model

 Example  If we have J modes, the probability that mode i will
 Assume we have three modes: Transit (TR), Drive Alone (DA), be chosen is
Bike (BK) expVi 
Pi  J
UTR  VTR  TR expVj 
j 1
U DA  VDA   DA
U BK  VBK   BK Pi  Probability that mode i is chosen

Probability to choose Transit (TR) is: Vi  Observed portion of utility for mode i

PTR  PU TR  U DA  PU TR  U BK  J Number of available modes

15 16
 Multinomial Logit Model Mode Choice Example 1
18

 Example: Assume we have three modes: Transit (TR),

Drive Alone (DA), Bike (BK). The probability Transit Utility Functions for auto and bus are
will be chosen is Vauto  0.73  0.47OPCauto  0.22TTTauto

expVTR  Vbus  0.47OPCbus  0.22TTTbus

PTR 
expVTR   expVDA   expVBK  If for everyone traveling between TAZs 1 and 3,

Out of pocket cost (OPC) is OPCauto  $0 OPCbus  $0.75

Total travel time (TTT) is TTTauto  10.5 min TTTbus  18 min

17

Mode Choice Example 1 (Cont.) A Close Look at the Equation

19 20

Vauto  0.73  0.47  0.0  0.22 10.5  1.58

1
exp(Vauto ) Pauto
Pauto  0.8
exp(Vauto )  exp(Vbus )
Vbus  0.47  0.75  0.22 18.0  4.31 1 0.6

exp(Vauto ) exp(Vauto )
The probabilities of choosing auto and bus are:   0.4
exp(Vauto )  exp(Vbus ) 1
exp(Vauto ) exp( 1.58) exp(Vauto ) 0.2

Pauto    0.939 1
exp(Vauto )  exp(Vbus ) exp( 1.58)  exp( 4.31) 
0
-3 -2 -1 0 1 2
exp(Vbus )
1 Vbus  Vauto
exp(Vauto )
exp(Vbus ) exp( 4.31) 1 Vauto  1.58 The most important thing is
Pbus    0.061 
exp(Vauto )  exp(Vbus ) exp( 1.58)  exp( 4.31) 1  exp(Vbus  Vauto ) the difference between utility
Vbus  3.96 values
 Independence from Irrelevant Alternatives
Independence from Irrelevant Alternatives
(Cont.)
Ui  bi 0  bi1xi1  ....  bin xin   i
 A fundamental assumption of Multinomial Logit Vauto  2
(MNL) model is that:
i
 For different modes, their random terms are Independent
and Identically Distributed (IID) Vbus _ blue  2
 Because of this IID assumption, the following property can be
derived
exp(Vauto ) e2 e2
Pauto  Pbus 
exp(Vbus ) Pauto  2 2  0.5 Pbus _ blue  2 2  0.5
exp(Vauto )  exp(Vbus ) exp(Vauto )  exp(Vbus ) e e e e
Pauto exp(Vauto ) Independence from Irrelevant

Pbus exp(Vbus ) Alternatives (IIA) property
21 22

Independence from Irrelevant Alternatives Independence from Irrelevant Alternatives

(Cont.) (Cont.)
24

Vauto  2  If the IID assumption and IIA property is

violated, the following models can be used
Vbus _ blue  2 instead
 Probitmodel
Vbus _ red  2  Mixed logit model

e2  Nested logit model

Pauto   0.333 Red bus/blue bus problem
e2  e2  e2

e2 e2
Pbus _ blue   0.333 Pblue _ red   0.333
e2  e2  e2 e2  e2  e2
23
 Individual and Alternative-Specific Individual and Alternative-Specific
Variables Variables (Cont.)
25 26

 Variables in a utility function are either individual or

Alternative
alternative-specific Alternative-specific Alternative

 Individual Variable Vauto  1   2 IVTTauto   4OVTTauto   5 OPTCauto / INC    6 AO

 Included in different alternative’s (mode) utility function with
exactly the same value Vbus   3 IVTTbus   4OVTTbus   5 OPTCbus / INC 
individual-specific
Alternative
Alternative-specific
 Alternative-Specific Variable
Alternative
 Has different values for different alternatives IVTT  In-vehicle travel time
OVTT  Out-of-vehicle travel time
OPTC  Out-of-pocket travel cost
INC  Household income
AO  Auto ownership

Individual and Alternative-Specific Individual and Alternative-Specific

Variables (Cont.) Variables (Cont.)
28

Alternative
Alternative-specific Alternative

Vauto  1   2 IVTTauto   4OVTTauto   5 OPTCauto / INC    6 AO

Vbus   3 IVTTbus   4OVTTbus   5 OPTCbus / INC    7 AO

Alternative individual-specific
Alternative-specific
Alternative

• Alternative specific variables with a generic or alternative-specific

coefficient
• Individual specific variables with an alternative-specific coefficient

Alternative-specific individual-specific
 Individual and Alternative-Specific
Variables (Cont.)
29

Vauto  ...   6 AO

Vbus  ...   6 AO

exp(Vauto ) 1
Pauto  
exp(Vauto )  exp(Vbus ) 1  exp(Vbus  Vauto )

Socio-economic characteristic variables such as age, auto-

ownership (AO), and household income are often used as
individual-specific variables and have different coefficients
for different modes