The Axiomatic Foundation of Logit

Breitmoser, Yves (2018): The Axiomatic Foundation of Logit. Collaborative Research Center Transregio 190, Discussion Paper No. 78

Abstract

Multinomial logit is the canonical model of discrete choice but widely criticized for requiring functional form assumptions as foundation. The present paper shows that logit is behaviorally founded without such assumptions. Logit's functional form obtains if relative choice probabilities are independent of irrelevant alternatives and invariant to utility translation, to relabeling options (presentation independence), and to changing utilities of third options (context independence). Reviewing behavioral evidence, presentation and context independence seem to be violated in typical experiments, though not IIA and translation invariance. Relaxing context independence yields contextual logit (Wilcox, 2011), relaxing presentation independence allows to capture "focality" of options.

• Dokumententyp: Paper
• Keywords: stochastic choice, logit, axiomatic foundation; behavioral evidence; utility estimation
• Fakultät: Volkswirtschaft > Collaborative Research Center Transregio "Rationality and Competition"
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: D03, C13
• Sprache: Englisch