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The Axiomatic Foundation of Logit

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  • Breitmoser, Yves

    (HU Berlin)

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.

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  • Breitmoser, Yves, 2018. "The Axiomatic Foundation of Logit," Rationality and Competition Discussion Paper Series 78, CRC TRR 190 Rationality and Competition.
  • Handle: RePEc:rco:dpaper:78
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    More about this item

    Keywords

    stochastic choice; logit; axiomatic foundation; behavioral evidence; utility estimation;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General

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