Latent class choice models with an error structure: Investigating potential unobserved associations between latent segmentation and behavior generation

Latent class choice modeling has gained great popularity in the transportation and choice modeling communities across the years. However, discussion of principles associated with the specification of the class membership model has barely appeared in the literature. Related to this issue, this study questions whether one of the basic assumptions of latent class choice modeling, that of independence between latent segmentation and the behavior generation process, is tenable. We formulate latent class choice models where the unobserved influences on latent segmentation and behavior generation are correlated, by introducing an error structure reflecting that supposition. The proposed method is applied to two empirical settings. In the first application, the dependent variable is an ordinal variable measuring willingness to share autonomous vehicle rides with strangers. In the second application, the dependent variable is a binary indicator of whether a person has used ridehailing services for social purposes. In both applications, error correlations were statistically significant, indicating that the segmentation and behavior generation processes are jointly determined. Although goodness of fits and parameter estimates per se are similar to those of the standard latent class choice models for these particular applications, allowing an error structure leads to a subtle change in model implications. In particular, our scenario analyses, which present marginal effects, illustrate the value of the proposed model for considering jointness arising from correlated errors, in contrast to standard latent class models. Lastly, we propose several avenues for future research.