Document Type
Discussion Paper
Publication Date
6-1-1982
CFDP Number
636
CFDP Pages
10
Abstract
This paper suggests that the predicted probabilities of outcomes given by an estimated discrete choice model by thought of as prices (or bookmaker odds) associated with those outcomes. By buying or selling contracts (gambling) at those prices (odds) it should not be possible to, on average, make a profit if the model is well specified and is generating “correct” prices. This notion then forms the basis of a model specification test.
Recommended Citation
Beggs, John J., "A Bookmaker or Market Type Test for Specification in Discrete Choice Models" (1982). Cowles Foundation Discussion Papers. 871.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/871