Nested Logit Models

Yufeng Zhang
February 10, 2019

Install the package “mlogit” if you haven’t, and install the package “AER” where there is a data set called
“TravelMode”.
#install.packages("mlogit", repos = "http://cran.us.r-project.org")
#install.packages("AER", repos = "http://cran.us.r-project.org")
library(mlogit)
library(AER)
data(TravelMode) # load the data set "TravelMode"
head(TravelMode)

Now we will need to operate on the data to create a new data set. After this you should be able to see new
columns in your data TravelMode.
# create a new column called "time"
TravelMode$time <- with(TravelMode, (travel + wait)/60)

# create a new column called "timeair" whose value equals

# the time if the mode is "air", and 0 otherwise
TravelMode$timeair <- with(TravelMode, time * I(mode == "air"))

# rescale data column "income"

TravelMode$income <- with(TravelMode, income / 10)

# create a new column "incomeother"

TravelMode$incomeother <- with(TravelMode, ifelse(mode %in% c('air', 'car'), income, 0))

# create a new column "group", "air" and "car" are

# grouped into "other" and "train" and "bus" are grouped into "public"
TravelMode$group <- with(TravelMode, ifelse( mode == "air" | mode == "car" , "other", "public"))

# transform the data set to mlogit.data format

TravelMode <- mlogit.data(TravelMode, choice = "choice", shape = "long",
alt.levels = c("air", "train", "bus", "car"),
group = "group")

Up to here, we finished the construction of the data set “TravelMode”.

Now let’s build a nested logit model.
nl <- mlogit(choice~ time + incomeother, TravelMode,
shape='long', alt.var='mode',
nests=list(public=c('train', 'bus'), other=c('car','air')), reflevel = "car")
summary(nl)

##
## Call:
## mlogit(formula = choice ~ time + incomeother, data = TravelMode,
## reflevel = "car", nests = list(public = c("train", "bus"),
## other = c("car", "air")), shape = "long", alt.var = "mode")
##

1
## Frequencies of alternatives:
## car air train bus
## 0.28095 0.27619 0.30000 0.14286
##
## bfgs method
## 3 iterations, 0h:0m:1s
## g'(-H)^-1g = 18.6
## last step couldn't find higher value
##
## Coefficients :
## Estimate Std. Error z-value Pr(>|z|)
## air:(intercept) -3.966671 1.094979 -3.6226 0.0002917 ***
## train:(intercept) 3.579651 0.741452 4.8279 1.380e-06 ***
## bus:(intercept) 2.873627 0.746598 3.8490 0.0001186 ***
## time -0.589287 0.126603 -4.6546 3.246e-06 ***
## incomeother 0.469757 0.099707 4.7114 2.461e-06 ***
## iv:public 1.020640 0.459500 2.2212 0.0263377 *
## iv:other 2.818374 0.871087 3.2355 0.0012144 **
## ---
## Signif. codes: 0 '***' 0.001 '**' 0.01 '*' 0.05 '.' 0.1 ' ' 1
##
## Log-Likelihood: -229.4
## McFadden R^2: 0.19158
## Likelihood ratio test : chisq = 108.73 (p.value = < 2.22e-16)
Now lets calculate a the probability of using each mode for the following case:

Mode time incomeother

Air 2.816 3.5
Train 6.767 0.0
Bus 7.533 0.0
Car 3.000 3.5

Let’s have a look at the coefficients.

nl$coefficients

## air:(intercept) train:(intercept) bus:(intercept) time

## -3.9666705 3.5796509 2.8736272 -0.5892872
## incomeother iv:public iv:other
## 0.4697572 1.0206400 2.8183744
## attr(,"fixed")
## air:(intercept) train:(intercept) bus:(intercept) time
## FALSE FALSE FALSE FALSE
## incomeother iv:public iv:other
## FALSE FALSE FALSE
The following calculates the utilities of four modes:
v_air <- nl$coefficients[1] + nl$coefficients[4] * 2.816 + nl$coefficients[5] * 3.5
v_train <- nl$coefficients[2] + nl$coefficients[4] * 6.767 + nl$coefficients[5] * 0.0
v_bus <- nl$coefficients[3] + nl$coefficients[4] * 7.533 + nl$coefficients[5] * 0.0
v_car <- 0 + nl$coefficients[4] * 3.000 + nl$coefficients[5] * 3.5

Calculate conditional probabilities:

2
c_air <- exp(v_air/nl$coefficients[7]) / ( exp(v_air/nl$coefficients[7]) +
exp(v_car/nl$coefficients[7]) )
c_car <- exp(v_car/nl$coefficients[7]) / ( exp(v_air/nl$coefficients[7]) +
exp(v_car/nl$coefficients[7]) )
c_bus <- exp(v_bus/nl$coefficients[6]) / ( exp(v_bus/nl$coefficients[6]) +
exp(v_train/nl$coefficients[6]) )
c_train <- exp(v_train/nl$coefficients[6]) / ( exp(v_bus/nl$coefficients[6]) +
exp(v_train/nl$coefficients[6]))

Calculate inclusive values:

iv_public <- nl$coefficients[6] * log( exp(v_bus/nl$coefficients[6]) +
exp(v_train/nl$coefficients[6]) )
iv_other <- nl$coefficients[7] * log( exp(v_air/nl$coefficients[7]) +
exp(v_car/nl$coefficients[7]) )

Calculate branch probabilities:

b_public <- exp(iv_public) /( exp(iv_public)+ exp(iv_other))
b_other <- exp(iv_other) /( exp(iv_public)+ exp(iv_other))

Calculate alternative probabilities:

p_air <- c_air * b_other
p_car <- c_car * b_other
p_train <- c_train * b_public
p_bus <- c_bus * b_public
c(p_air[[1]], p_car[[1]], p_train[[1]], p_bus[[1]])

## [1] 0.13270177 0.52168515 0.26148342 0.08412966