Statistical Methods in Customer Relationship Management

Appendix F

Multinomial Logit Model

(Sources: Greene [1] and Borooah [2])

The unordered-choice model can be motivated by a random utility model. For the th customer faced with choices, suppose that the utility of choice is

(F.1)

If the consumer makes choice , then we assume that is the maximum among the utilities. Hence, the statistical model is driven by the probability that choice is made, which is

(F.2)

McFadden [3] has shown that if and only if the disturbances are independent and identically ...