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Random Choice as Behavioral Optimization

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  • Faruk Gul
  • Paulo Natenzon
  • Wolfgang Pesendorfer

Abstract

We develop an extension of Luce's random choice model to study violations of the weak axiom of revealed preference. We introduce the notion of a stochastic preference and show that it implies the Luce model. Then, to address well‐known difficulties of the Luce model, we define the attribute rule and establish that the existence of a well‐defined stochastic preference over attributes characterizes it. We prove that the set of attribute rules and random utility maximizers are essentially the same. Finally, we show that both the Luce and attribute rules have a unique consistent extension to dynamic problems.

Suggested Citation

  • Faruk Gul & Paulo Natenzon & Wolfgang Pesendorfer, 2014. "Random Choice as Behavioral Optimization," Econometrica, Econometric Society, vol. 82(5), pages 1873-1912, September.
    • Handle: RePEc:wly:emetrp:v:82:y:2014:i:5:p:1873-1912
    DOI: 10.3982/ECTA10621
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