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The Focal Luce Model

Author

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  • Matthew Kovach
  • Gerelt Tserenjigmid

Abstract

We introduce the Focal Luce Model (FLM), a random choice model that generalizes Luce's (1959) model (multinomial logit) to account for menu-dependent focality of alternatives. In the FLM, focal alternatives are relatively more likely to be chosen even after taking utilities into account. The FLM captures a variety of bounded rationality models while behaviorally distinguishing between what is focal and the magnitude of the bias from focality. We show how to identify utilities, focal sets, and bias terms from choice frequencies; behaviorally characterize the FLM by weakening Luce's (1959) independence from irrelevant alternatives; and apply our model to choice data and games.

Suggested Citation

  • Matthew Kovach & Gerelt Tserenjigmid, 2022. "The Focal Luce Model," American Economic Journal: Microeconomics, American Economic Association, vol. 14(3), pages 378-413, August.
    • Handle: RePEc:aea:aejmic:v:14:y:2022:i:3:p:378-413
    DOI: 10.1257/mic.20200111
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    Citations

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    Cited by:

    1. Duffy, Sean & Smith, John, 2020. "An economist and a psychologist form a line: What can imperfect perception of length tell us about stochastic choice?," MPRA Paper 99417, University Library of Munich, Germany.
    2. Victor H. Aguiar & Maria Jose Boccardi & Nail Kashaev & Jeongbin Kim, 2023. "Random utility and limited consideration," Quantitative Economics, Econometric Society, vol. 14(1), pages 71-116, January.
    3. Li, Boyao, 2023. "Random utility models with status quo bias," Journal of Mathematical Economics, Elsevier, vol. 105(C).

    More about this item

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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