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Equivalent Logit Choice Probabilities from Optimization and Randomization

Author

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  • Martí Mestieri Ferrer
  • Jordan J. Norris

Abstract

We uncover an equivalence between two opposite behavioral microfoundations for the standard multinomial logit choice model: 1) agents optimize their choice accordingly to the random utility model under Gumbel idiosyncratic shocks; 2) agents randomize over options subject to a minimum utility requirement. Both generate identical multinomial logit choice probabilities, yet have different welfare implications: wel-fare is strictly lower under randomization, since only optimizing agents select into options with favorable realizations of idiosyncratic shocks.

Suggested Citation

  • Martí Mestieri Ferrer & Jordan J. Norris, 2026. "Equivalent Logit Choice Probabilities from Optimization and Randomization," Working Papers 1547, Barcelona School of Economics.
    • Handle: RePEc:bge:wpaper:1547
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General

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