Unobserved Heterogeneity in Hospitality and Tourism Research

Despite the growing complexity of structural equation model (SEM) applications in tourism, it is surprising that most applications have estimated these models without accounting for unobserved heterogeneity. In this article, we aim to discuss the concept of unobserved heterogeneity in more detail, highlighting its serious threats to the validity and reliability of SEMs. We describe a Bayesian finite mixture modeling framework for estimating SEMs while accounting for unobserved heterogeneity. We provide a comprehensive description of this model, and provide guidance on its estimation using the WinBUGS software. We illustrate the importance of unobserved heterogeneity and the finite mixture modeling framework using a didactic application on brand equity where heterogeneity is likely to play an important role because of the differences in how consumers perceive the different dimensions of brand equity. We compare between various models and illustrate the differences between the standard and heterogeneous SEM and discuss the implications for research and practice.