Title

A Bookmaker or Market Type Test for Specification in Discrete Choice Models

Authors

John J. Beggs

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.

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