Testing for IIA with the Hausman-Mcfadden Test

52 Pages Posted: 11 Jul 2011

See all articles by Wim P.M. Vijverberg

Wim P.M. Vijverberg

CUNY The Graduate Center - Department of Economics; IZA Institute of Labor Economics

Abstract

The Independence of Irrelevant Alternatives assumption inherent in multinomial logit models is most frequently tested with a Hausman-McFadden test. As is confirmed by many findings in the literature, this test sometimes produces negative outcomes, in contradiction of its asymptotic χ² distribution. This problem is caused by the use of an improper variance matrix and may lead to an invalid statistical inference even when the test value is positive. With a correct specification of the variance, the sampling distribution for small samples is indeed close to a χ² distribution.

Keywords: multinomial logit, IIA assumption, Hausman-McFadden test

JEL Classification: C12, C35

Suggested Citation

Vijverberg, Wim, Testing for IIA with the Hausman-Mcfadden Test. IZA Discussion Paper No. 5826, Available at SSRN: https://ssrn.com/abstract=1882845 or http://dx.doi.org/10.2139/ssrn.1882845

Wim Vijverberg (Contact Author)

CUNY The Graduate Center - Department of Economics ( email )

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IZA Institute of Labor Economics

P.O. Box 7240
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