I’m implementing a multinomial logit model but I have a problem regarding price variable.
I’m implementing a multinomial logit model but I have a
problem regarding price variable. Let’s say the choice set
has 4 alternatives. Each alternative are characterized by
different attributes one of which is price. Each alternative
has its own price:for example alternative from 1 to 4 has
price (10,20,30,40). For some people (student for example)
price are discounted of 50%, so the price of the alternatives
are (5,10,15,20). In such a case how it is possible to treat
the price variable? Interact the price with a discount
variable?Put as explanatory variable all the different price
categorie (e.g full price, price children, price senior…)?
Consider only the full price and set a dummy variable for the
category? Thank you