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Behavioral Foundations of Nested Stochastic Choice and Nested Logit

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  • Matthew Kovach
  • Gerelt Tserenjigmid

Abstract

We provide the first behavioral characterization of nested logit, a foundational and widely applied discrete-choice model, through the introduction of a nonparametric version of nested logit that we call “nested stochastic choice” (NSC). NSC is characterized by a single axiom that weakens independence of irrelevant alternatives on the basis of revealed similarity to allow for the similarity effect. Nested logit is characterized by an additional menu-independence axiom. Our axiomatic characterization leads to a practical, data-driven algorithm that identifies the true nest structure from choice data. We also discuss limitations of generalizing nested logit by studying the testable implications of cross-nested logit.

Suggested Citation

  • Matthew Kovach & Gerelt Tserenjigmid, 2022. "Behavioral Foundations of Nested Stochastic Choice and Nested Logit," Journal of Political Economy, University of Chicago Press, vol. 130(9), pages 2411-2461.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/720399
    DOI: 10.1086/720399
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    Cited by:

    1. Azrieli, Yaron & Rehbeck, John N., 0. "Marginal stochastic choice," Theoretical Economics, Econometric Society.
    2. Hendrik Rommeswinkel, 2025. "Procedural Mixture Sets," Papers 2508.07588, arXiv.org.
    3. Pennesi, Daniele, 2025. "A behavioral model of consumer response to price information," Journal of Economic Behavior & Organization, Elsevier, vol. 230(C).
    4. Tri Phu Vu, 2025. "Random Collection," Papers 2511.18476, arXiv.org.
    5. Pavlo R. Blavatskyy, 2024. "Debreu’s choice model," Theory and Decision, Springer, vol. 96(2), pages 297-310, March.
    6. Liu, Yuhan & Hu, Yunyi & Zheng, Xuemei, 2025. "Effectiveness and efficiency of incentivizing policies for new energy vehicles: From the perspective of powertrain type," Transportation Research Part A: Policy and Practice, Elsevier, vol. 199(C).
    7. Faro, José Heleno, 2023. "The Luce model with replicas," Journal of Economic Theory, Elsevier, vol. 208(C).
    8. Hsieh, Sung-Lin & Ke, Shaowei & Wang, Zhaoran & Zhao, Chen, 2025. "Logit neural-network utility," Journal of Economic Behavior & Organization, Elsevier, vol. 236(C).
    9. Alós-Ferrer, Carlos & Mihm, Maximilian, 2025. "A characterization of the Luce choice rule for an arbitrary collection of menus," Journal of Economic Theory, Elsevier, vol. 223(C).

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