Nested Allocation

(work in progress)

Nested Allocation is comparable to Nested Discrete Choice modelling.

Discuss:

Blue Bus / Red Bus Paradox: http://en.wikipedia.org/wiki/Independence_of_irrelevant_alternatives

Any nested allocation result can be generated by an unnested allocation result by altering the suitability maps to match the nested result, however if certain suitability factors strongly influence the choice within a sub category but don't influence as much the preference of a prior choice, a nested model will be more elegant than correcting the main suitability + subtype suitability by a term with value log(SUM(exp(subtype suitabilities)) that is required to meet the same allocation result as when the main type was modelled as a single alternative. Furthermore, if changes of claims (and shadow prices) should only or mostly affect other sub-types within the same main-type, this correction must be made dependent on the shadow prices and one ends up at a nested logit model anyway.

http://www.econ.kuleuven.be/eng/ew/discussionpapers/Dps11/Dps1124.pdf