Group, and Point72 Asset Management for helpful comments. We thank Andrea Frazzini, Ken French, and Sophia Li for providing data used in the analysis, Huaizhi Chen and Michela Verardo for assistance with TAQ and Conrad Landis for assistance with TRTH. Financial support from the Paul Woolley Centre at the LSE is gratefully acknowledged.

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Abstract:We show that exact computation of a family of 'max weighted score' estimators, including Manski's max score estimator, can be achieved efficiently by reformulating them as mixed integer programs (MIP) with disjunctive constraints. The advantage of our MIP formulation is that estimates are exact and can be computed using widely available solvers in reasonable time. In a classic work-trip mode choice application our method delivers exact estimates that lead to a different economic interpretation of the data than previous heuristic estimates. In a small Monte Carlo study we find that our approach is computationally efficient for usual estimation problem sizes.

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