Does inclusion of latent classes in my model allow better share predictions?
A. Yes. The standard aggregate model generally suffers from violations of the independence of irrelevant alternatives (IIA) problem, which distorts share predictions. Inclusion of latent classes to account for the fact that different segments have different utility preferences, (and IIA holds true within each segment), is a way of resolving this problem and improving share predictions. See “New Developments in Latent Class Choice Models” article for more information.
