---
title: "5. The random parameters (or mixed) logit model"
output: rmarkdown::html_vignette
bibliography: ../inst/REFERENCES.bib
vignette: >
  %\VignetteIndexEntry{5. The random parameters (or mixed) logit model}
  %\VignetteEngine{knitr::rmarkdown}
  %\VignetteEncoding{UTF-8}
---

```{r label = setup, include = FALSE}
knitr::opts_chunk$set(echo = TRUE, message = FALSE, warning = FALSE, widtht = 65)
options(width = 65)
```
## Derivation of the model

A mixed logit model or random parameters logit model is a logit model
for which the parameters are assumed to vary from one individual to
another. It is therefore a model that takes the heterogeneity of the
population into account.

### The probabilities

For the standard logit model, the probability that individual $i$
choose alternative $j$ is:
$$
P_{il}=\frac{e^{\beta'x_{il}}}{\sum_j e^{\beta'x_{ij}}}.
$$

Suppose now that the coefficients are individual-specific. The
probabilities are then:

$$
P_{il}=\frac{e^{\beta_i'x_{il}}}{\sum_j e^{\beta_i'x_{ij}}}.
$$

A first approach consists on estimating the parameters for every
individual. However, these parameters are identified and can be
consistently estimated only if a large number of choice situations per
individual is available, which is scarcely the case. 

A more appealing approach consists on considering the $\beta_i$'s as
random draws from a distribution whose parameters are estimated, which
leads to the mixed logit model.  The probability that individual $i$
will choose alternative $l$, for a given value of $\beta_i$ is:

$$
P_{il} \mid \beta_i =\frac{e^{\beta_i'x_{il}}}{\sum_j e^{\beta_i'x_{ij}}}.
$$

To get the unconditional probability, we have to integrate out this
conditional probability, using the density function of $\beta$.
Suppose that $V_{il}=\alpha+\beta_i x_{il}$, i.e.,  there is only
one individual-specific coefficient and that the density of $\beta_i$
is $f(\beta,\theta)$, $\theta$ being the vector of the parameters of
the distribution of $\beta$. The unconditional probability is then:

$$
P_{il}= \mbox{E}(P_{il} \mid \beta_i) =
\int_{\beta}(P_{il} \mid \beta)f(\beta,\theta)d\beta
=
\int_{\beta}\frac{e^{\beta_i'x_{il}}}{\sum_j e^{\beta_i'x_{ij}}}f(\beta,\theta)d\beta,
$$

which is a one-dimensional integral that can be efficiently estimated
by quadrature methods.  If $V_{il}=\beta_i^{\top} x_{il}$ where
$\beta_i$ is a vector of length $K$ and $f(\beta,\theta)$ is the joint
density of the $K$ individual-specific coefficients, the unconditional
probability is:

$$
P_{il}= \mbox{E}(P_{il} \mid \beta_i) =
\int_{\beta_1}\int_{\beta_2}...\int_{\beta_K}(P_{il} \mid
\beta)f(\beta,\theta)d\beta_1d\beta_2... d\beta_K.
$$

This is a $K$-dimensional integral which cannot easily be estimated by
quadrature methods. The only practical method is then to use
simulations. More precisely, $R$ draws of the parameters are taken
from the distribution of $\beta$, the probability is computed for
every draw and the unconditional probability, which is the expected
value of the conditional probabilities is estimated by the average of
the $R$ probabilities.

### Individual parameters

The expected value of a random coefficient ($\mbox{E}(\beta)$) is
simply estimated by the mean of the $R$ draws on its distribution:
$\bar{\beta}=\sum_{r=1}^R \beta_r$.  Individual parameters are
obtained by first computing the probabilities of the observed choice
of $i$ for every value of $\beta_r$:

$$
P_{ir}=\frac{\sum_j y_{ij} e^{\beta_r^{'}x_{ij}}}{\sum_j e^{\beta_r^{'}x_{ij}}},
$$

where $y_{ij}$ is a dummy equal to one if $i$ has chosen alternative
$j$. The expected value of the parameter for an individual is then
estimated by using these probabilities to weight the $R$ $\beta$
values:

$$
\hat{\beta}_i = \frac{\sum_r P_{ir} \beta_r}{\sum_r P_{ir}}.
$$

### Panel data

If there are repeated observations for the same individuals, the
longitudinal dimension of the data can be taken into account in the
mixed logit model, assuming that the random parameters of individual
$i$ are the same for all his choice situations. Denoting $y_{itl}$ a
dummy equal to 1 if $i$ choose alternative $l$ for the $t^{th}$ choice
situation, the probability of the observed choice is:

$$P_{it}=\prod_j \frac{\sum_j y_{itj}e^{\beta_i x_{itl}}}{\sum_j e^{\beta_i x_{itj}}}.
$$

The joint probability for the $T$
observations of individual $i$ is then:

$$P_{i}=\prod_t \prod_j \frac{\sum_jy_{itj}e^{\beta_i x_{itj}}}{\sum_j e^{\beta_i x_{itj}}},$$

and the log-likelihood is simply $\sum_i \ln P_i$.

## Application

The random parameter logit model is estimated by providing a `rpar`
argument to `mlogit`. This argument is a named vector, the names being
the random coefficients and the values the name of the law of
distribution. Currently, the normal (`"n"`), log-normal (`"ln"`),
zero-censored normal (`"cn"`), uniform (`"u"`) and triangular (`"t"`)
distributions are available. For these distributions, two parameters
are estimated which are, for normal related distributions, the mean
and the standard-deviation of the underlying normal distribution and
for the uniform and triangular distribution, the mean and the half
range of the distribution. For these last two distributions,
zero-bounded variants are also provided (`"zbt"` and `"zbu"`). These
two distributions are defined by only one parameter (the mean) and
their definition domain varies from 0 to twice the mean.

Several considerations may lead to the choice of a specific
distribution:



- if correlated coefficients are required, the natural choice is a
  (transformed-) normal distribution, `"n"`, `"ln"`, `"tn"` and
  `"cn"`,
- it's often the case that one wants to impose that the distribution
  of a random parameter takes only positive or negative values. For
  example, the price coefficient should be negative for every
  individual. In this case, `"zbt"` and `"zbu"` can be used. The use
  of `"ln"` and `"cn"` can also be relevant but, in this case, if only
  negative values are expected, one should consider the distribution
  of the opposite of the random price coefficient. This can easily be
  done using the `opposite` argument of `dfidx`.^[See vignette
  [formula/data](./c2.formula.data.html).],
- the use of unbounded distributions often leads to implausible
  values of some statistics of the random parameters, especially the
  mean. This is particularly the case of the log-normal distribution,
  which has an heavy left tail. In this case, the use of bounded
  distribution like the uniform and the triangular distributions can be
  used.

`R` is the number of draws, `halton` indicates whether halton draws
[see @TRAI:09 chapter 9] should be used (`NA` and `NULL` indicate
respectively that default halton draws are used and that pseudo-random
numbers are used), `panel` is a boolean which indicates if the panel
data version of the log-likelihood should be used.

Correlations between random parameters can be introduced only for
normal-related distributed random parameters, using the `correlation`
argument. If `TRUE`, all the normal-related random parameters are
correlated. The `correlation` argument can also be a character vector
indicating the random parameters that are assumed to be correlated.

### Train

We use the `Train` data set, previously coerced to a
`dfidx` object called `Tr`. We first estimate the
multinomial model: both alternatives being virtual train trips, it is
relevant to use only generic coefficients and to remove the intercept:


```{r label = 'multinomial logit for the Train data'}
library("mlogit")
data("Train", package = "mlogit")
Train$choiceid <- 1:nrow(Train)
Tr <- dfidx(Train, choice = "choice", varying = 4:11, sep = "_",
            opposite = c("price", "comfort", "time", "change"),
            idx = list(c("choiceid", "id")), idnames = c("chid", "alt"))
Tr$price <- Tr$price / 100 * 2.20371
Tr$time <- Tr$time / 60
Train.ml <- mlogit(choice ~ price + time + change + comfort | - 1, Tr)
coef(summary(Train.ml))
``` 

All the coefficients are highly significant and have the predicted
positive sign (remind than an increase in the variable `comfort`
implies using a less comfortable class). The coefficients can't be
directly interpreted, but dividing them by the price coefficient, we
get monetary values:

```{r label = 'marginal rates of substitution for Train'}
coef(Train.ml)[- 1] / coef(Train.ml)[1]
``` 

We obtain the value of 26 euros for an hour of traveling, 5 euros for
a change and 14 euros to travel in a more comfortable class. We then
estimate a model with three random parameters, `time`, `change` and
`comfort`. We first estimate the uncorrelated mixed logit model:

```{r label = 'mixed logit estimation for Train (1)'}
Train.mxlu <- mlogit(choice ~ price + time + change + comfort | - 1, Tr,
panel = TRUE, rpar = c(time = "n", change = "n", comfort = "n"), R = 100,
correlation = FALSE, halton = NA, method = "bhhh")
names(coef(Train.mxlu))
``` 

Compared to the multinomial logit model, there are now three more
coefficients which are the standard deviations of the distribution of
the three random parameters. The correlated model is obtained by
setting the `correlation` argument to `TRUE`.

```{r label = 'mixed logit estimation for Train (2)'}
Train.mxlc <- update(Train.mxlu, correlation = TRUE)
names(coef(Train.mxlc))
``` 

There are now 6 parameters which are the elements of the Choleski
decomposition of the covariance matrix of the three random parameters.

These 6 parameters are therefore the elements of the following matrix

$$
C=
\left(
  \begin{array}{ccc}
    c_{11} & 0  & 0 \\
    c_{12} & c_{22} & 0 \\
    c_{13} & c_{23} & c_{33}
  \end{array}
\right)
$$

such that:

$$
CC^{\top}=
\left(
  \begin{array}{ccc}
    c_{11}^2 & c_{11} c_{12}  & c_{11}c_{13} \\
    c_{11}c_{12} & c_{12}^2 + c_{22}^2 & c_{12}c_{23}+c_{22}c_{23} \\
    c_{11}c_{13} & c_{12}c_{3} + c_{22}c_{23} & c_{13}^2 + c_{23}^2 c_{33}^2
  \end{array}
\right)
=
\left(
  \begin{array}{ccc}
    \sigma_{1}^2 & \sigma_{12}  & \sigma_{13} \\
    \sigma_{12} & \sigma_{2}^2 & \sigma_{23} \\
    \sigma_{13} & \sigma_{23} & \sigma_{3}^2
  \end{array}
\right)
$$

where $\sigma_i^2$ and $\sigma_{ij}$ are respectively the variance of
the random parameter $i$ and the covariance between two random
parameters $i$ and $j$. Therefore, the first estimated parameter can
be simply interpreted as the standard deviation of the first random
parameter, but the five other can't be interpreted easily.

Random parameters may be extracted using the function `rpar` which
take as first argument a `mlogit` object and as second argument `par`
the parameter(s) to be extracted. This function returns a `rpar`
object and a `summary` method is provided to describe it:

```{r label = 'summary of a random parameter in the preference space'}
marg.ut.time <- rpar(Train.mxlc, "time")
summary(marg.ut.time)
``` 

The estimated random parameter is in the "preference space", which
means that it is the marginal utility of time.

**Note that `summary(marg.ut.time)` displays the unconditional
distribution of the marginal utility of time.**

Parameters in the "willingness to pay" (WTP) space are more easy to
interpret. They can be estimated directly (a feature not supported by
`mlogit`) or can be obtained from the marginal utility by dividing it
by the coefficient of a covariate expressed in monetary value (a price
for example), taken as a non random parameter. The ratio can then be
interpreted as a monetary value (or willingness to pay). To obtain the
distribution of the random parameters in the WTP space, one can use
the `norm` argument of `rpar`:

```{r label = 'summary of a random parameter in the wtp space'}
wtp.time <- rpar(Train.mxlc, "time", norm = "price")
summary(wtp.time)
``` 

The median value (and the mean value as the distribution is symmetric)
of transport time is about 33 euros. Several methods/functions are
provided to extract the individual statistics (`mean`, `med` and
`stdev` respectively for the mean, the median and the standard
deviation):


```{r label = 'statistics of the random parameter in the wtp space'}
mean(rpar(Train.mxlc, "time", norm = "price"))
med(rpar(Train.mxlc, "time", norm = "price"))
stdev(rpar(Train.mxlc, "time", norm = "price"))
``` 

In case of correlated random parameters, as the estimated parameters
can't be directly interpreted, a `vcov` method for `mlogit` objects is
provided. It has a `what` argument which default value is
`coefficient`. In this case the usual covariance matrix of the
coefficients is return. If `what = "rpar"`, the covariance matrix of
the correlated random parameters is returned if `type = "cov"` (the
default) and the correlation matrix (with standard deviations on the
diagonal) is returned if `type = "cor"`. The object is of class
`vcov.mlogit` and a `summary` method for this object is provided which
computes, using the delta method, the standard errors of the
parameters of the covariance or the correlation matrix.

```{r label = 'vcov method for mlogit objects'}
vcov(Train.mxlc, what = "rpar")
vcov(Train.mxlc, what = "rpar", type = "cor")
summary(vcov(Train.mxlc, what = "rpar", type = "cor"))
summary(vcov(Train.mxlc, what = "rpar", type = "cov"))
``` 

 In case of correlated random parameters, as the estimated parameters
 are not directly interpretable, further functions are provided to
 analyze the correlation of the coefficients:

```{r label = 'specific methods for random parameters'}
cor.mlogit(Train.mxlc)
cov.mlogit(Train.mxlc)
stdev(Train.mxlc)
``` 

The correlation can be restricted to a subset of random parameters by
filling the `correlation` argument with a character vector indicating
the corresponding covariates:

```{r label = 'mixed logit with a subset of correlated paramaters'}
Train.mxlc2 <- update(Train.mxlc, correlation = c("time", "comfort"))
vcov(Train.mxlc2, what = "rpar", type = "cor")
``` 

The presence of random coefficients and their correlation can be
investigated using any of the three tests. Actually, three nested
models can be considered, a model with no random effects, a model with
random but uncorrelated effects and a model with random and correlated
effects. We first present the three tests of no correlated random
effects:

```{r label = 'convenient statpval function 3', include = FALSE}
statpval <- function(x){
    if (inherits(x, "anova")) 
        result <- as.matrix(x)[2, c("Chisq", "Pr(>Chisq)")]
    if (inherits(x, "htest")) result <- c(x$statistic, x$p.value)
    names(result) <- c("stat", "p-value")
    round(result, 3)
}
``` 


```{r label = 'tests of no correlated random effects'}
lr.mxc <- lrtest(Train.mxlc, Train.ml)
wd.mxc <- waldtest(Train.mxlc)
library("car")
lh.mxc <- linearHypothesis(Train.mxlc, c("chol.time:time = 0",
"chol.time:change =  0", "chol.time:comfort = 0", "chol.change:change = 0",
"chol.change:comfort = 0", "chol.comfort:comfort = 0"))
sc.mxc <- scoretest(Train.ml, rpar = c(time = "n", change = "n",
comfort = "n"), R = 100, correlation = TRUE, halton = NA, panel = TRUE)
sapply(list(wald = wd.mxc, lh = lh.mxc, score = sc.mxc, lr = lr.mxc),
statpval)
``` 

The hypothesis of no correlated random parameters is strongly
rejected. We then present the three tests of no correlation, the
existence of random parameters being maintained.


```{r label = 'tests of no correlation'}
lr.corr <- lrtest(Train.mxlc, Train.mxlu)
lh.corr <- linearHypothesis(Train.mxlc, c("chol.time:change = 0",
"chol.time:comfort = 0", "chol.change:comfort = 0"))
wd.corr <- waldtest(Train.mxlc, correlation = FALSE)
#YC
sc.corr <- scoretest(Train.mxlu, correlation = TRUE)
sapply(list(wald = wd.corr, lh = lh.corr, score = sc.corr, lr = lr.corr),
statpval)
``` 

The hypothesis of no correlation is strongly reject with the Wald and
the likelihood ratio test, only at the 5\% level for the score test.

### RiskyTransport

The second example is a study by @LEON:MIGU:17 who consider a
mode-choice model for transit from Freetown's airport (Sierra-Leone)
to downtown. Four alternatives are available: ferry, helicopter,
water-taxi and hovercraft. A striking characteristic of their study is
that all these alternatives experienced fatal accidents in recent
years, so that the fatality risk is non-negligible and differs much
from an alternative to another. For example, the probabilities of
dying using the water taxi and the helicopter are respectively of 2.55
and 18.41 out of 100,000 passenger-trips. This feature enables the
authors to estimate the value of a statistical life. For an individual
$i$, the utility of choosing alternative $j$ is:

$$
U_{ij}=\beta_{il} (1 - p_j) + \beta_{ic} (c_j + w_i t_j)+\epsilon_{ij},
$$

where $p_j$ is the probability of dying while using alternative $j$,
$c_j$ and $t_j$ the monetary cost and the transport time of
alternative $j$ and $w_i$ the wage rate of individual $i$ (which is
supposed to be his valuation of transportation time).
$C_{ij} = c_j + w_i t_j$ is therefore the individual specific
generalized cost for alternative $j$. $\beta_{il}$ and $\beta_{ic}$
are the (individual specific) marginal utility of surviving and of
expense. The value of the statistical life (VSL) is then defined by:

$$
\mbox{VSL}_i = -\frac{\beta_{il}}{\beta_{îc}} = \frac{\Delta
  C_{ij}}{\Delta (1-p_j)}.
$$

The two covariates of interest are `cost` (the generalized cost in
\$PPP) and `risk` (mortality per 100,000 passenger-trips).  The
`risk` variable being purely alternative specific, intercepts for
the alternatives cannot therefore be estimated. To avoid endogeneity
problems, the authors introduce as covariates marks the individuals
gave to 5 attributes of the alternatives: comfort, noise level,
crowdedness, convenience and transfer location and the "quality" of the
clientele. We first estimate a multinomial logit model.

```{r label = 'multinomial model for RiskyTransport'}
data("RiskyTransport", package = "mlogit")
RT <- dfidx(RiskyTransport, choice = "choice", idx = list(c("chid", "id"), "mode"),
            idnames = c("chid", "alt"))
ml.rt <- mlogit(choice ~ cost + risk  + seats + noise + crowdness +
convloc + clientele | 0, data = RT, weights = weight)
``` 

Note the use of the `weights` argument in order to set
weights to the observations, as done in the original study.

```{r label = 'coef of risk and cost'}
coef(ml.rt)[c("risk", "cost")]
``` 

The ratio of the coefficients of risk and of cost is `r
round(coef(ml.rt)['risk'] / coef(ml.rt)['cost'], 2)` (hundred of
thousands of \$), which means that the estimated value of the
statistical life is a bit less than one million \$.  We next consider
a mixed logit model. The coefficients of `cost` and `risk` are assumed
to be random, following a zero-bounded triangular distribution.

```{r label = 'mixed effects model for RiskyTransport'}
mx.rt <- mlogit(choice ~ cost + risk  + seats + noise + crowdness +
convloc + clientele | 0, data = RT, weights = weight,
rpar = c(cost = 'zbt', risk = 'zbt'), R = 100, halton = NA, panel = TRUE)
``` 

The results are presented in the following table:
```{r label = 'results for RiskyTransport', results = 'asis'}
library("texreg")
htmlreg(list('Multinomial logit' = ml.rt, 'Mixed logit' = mx.rt),
digits = 3, float.pos = "hbt", label = "tab:risktr", single.row = TRUE,
caption = "Transportation choices.")
``` 

Not that the log-likelihood is much larger for the mixed effect logit.
Individual-level parameters can be extracted using the `fitted`
method, with the type argument set to `parameters`.

```{r label = 'individual parameters'}
indpar <- fitted(mx.rt, type = "parameters")
head(indpar)
``` 

We can then compute the VSL for every individual and analyse their
distribution, using quantiles and plotting on
figure 1 the empirical density of VSL for African
and non-African travelers [as done in @LEON:MIGU:17 Table 4, p.219 and Figure
5, p.223].^[Note that individual-specific parameters
should be interpreted with caution, as they are consistent estimates
of individual parameters only if the number of choice situations for
every individual is large [see @TRAI:09 p.266].]

```{r label = 'individal parameters'}
indpar$VSL <- with(indpar, risk / cost * 100)
quantile(indpar$VSL, c(0.025, 0.975))
mean(indpar$VSL)
```

Note that computing the VSL as the ratio of two random parameters
which can take zero value can lead to extremely high values if the
individual parameter for cost is close to 0.^[See
@DALY:HESS:TRAI:12 for a discussion of the specifications of
mixed logit models which assure finite moments of the distribution of
willingness to pay.]

```{r label = 'max VSL'}
max(indpar$cost)
max(indpar$VSL)
``` 

This is not the case here as (absolute) minimum value of `cost`
is $-0.003$ which leads to a maximum value of VSL of \$ $3131$.

```{r plotindpar, fig.cap = "The value of a statistical life.", eval = FALSE}
library("ggplot2")
RT$id <- RT$id
indpar <- merge(unique(subset(as.data.frame(RT),
                              select = c("id", "african"))),
                indpar)
ggplot(indpar) + geom_density(aes(x = VSL, linetype = african)) + 
    scale_x_continuous(limits = c(200, 1200))
```

## Bibliography
