COWLES FOUNDATION FOR RESEARCH IN ECONOMICS
AT YALE UNIVERSITY

Box 208281
New Haven, CT 06520-8281

COWLES FOUNDATION DISCUSSION PAPER NO. 636

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

John J. Beggs

June 1982

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.