Choice Modelling - Theoretical Background

Theoretical Background

Choice modelling was developed in parallel by economists and cognitive psychologists. The origins of choice modelling can be traced to Thurstone's research into food preferences in the 1920s and to random utility theory.

Choice modelling posits that with human choice there is an underlying rational decision process and that this process has a functional form. Depending on the behavioural context, a specific functional form may be selected as a candidate to model that behaviour. The multinomial logit or MNL model form is commonly used as it is a good approximation to the economic principle of utility maximisation. That is, human beings strive to maximise their total utility. The multinomial logit form describes total utility as a linear addition (or subtraction) of the component utilities in a context. Once the functional form of the decision process has been established, the parameters of a specific model may be estimated from available data using multiple regression, in the case of MNL. Other functional forms may be used or combined, such as binary logit, probit or EBA with appropriate statistical tests to determine the goodness of fit of the model to a hold out data set.