Ordered Response Models and Non-Random Personality Traits: Monte Carlo Simulations and a Practical Guide

Center for European Governance and Economic Development Research Discussion Paper No. 116

33 Pages Posted: 17 Dec 2010 Last revised: 4 Jul 2012

See all articles by Ingo Geishecker

Ingo Geishecker

Georg-August-University Göttingen

Maximilian Riedl

University of Goettingen (Göttingen) - Department of Economics

Date Written: November 30, 2010

Abstract

The paper compares different estimation strategies of ordered response models in the presence of non-random unobserved heterogeneity. By running Monte Carlo simulations with a range of randomly generated panel data of differing cross-sectional and longitudinal dimension sizes we assess the consistency and efficiency of standard models such as linear fixed effects, ordered and conditional logit and several different binary recoding procedures. Among the analyzed binary recoding procedures is the conditional ordered logit estimator proposed by Ferrer-i-Carbonell and Frijters (2004) that recently has gained some popularity in the analysis of individual well-being. The Ferrer-i-Carbonell and Frijters estimator (FCF) performs best if the number of observations is large and the number of categories on the ordered scale is small. However, a much simpler individual mean based binary recoding scheme performs similarly well and even outperforms the FCF estimator if the number of categories on the ordered scale becomes large. If the researcher is, however, only interested in the relative size of coefficients with respect to a baseline the easy to compute linear fixed effect model essentially delivers the same results as the more elaborate binary recoding schemes.

Keywords: Fixed Effects, Ordered Logit, Ordered Responses, Happiness

JEL Classification: C230, C250, I310

Suggested Citation

Geishecker, Ingo and Riedl, Maximilian, Ordered Response Models and Non-Random Personality Traits: Monte Carlo Simulations and a Practical Guide (November 30, 2010). Center for European Governance and Economic Development Research Discussion Paper No. 116, Available at SSRN: https://ssrn.com/abstract=1725189 or http://dx.doi.org/10.2139/ssrn.1725189

Ingo Geishecker (Contact Author)

Georg-August-University Göttingen ( email )

Platz der Göttinger Sieben 3
Goettingen, 37073
Germany

Maximilian Riedl

University of Goettingen (Göttingen) - Department of Economics ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

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