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Dual Random Utility Maximisation

Author

Listed:
  • Paola Manzini

    () (School of Economics and Finance, University of St Andrews)

  • Marco Mariotti

    () (School of Economics and Finance, Queen Mary University of London)

Abstract

Dual Random Utility Maximisation (dRUM) is Random Utility Maximisation when utility depends on only two states. dRUM has many relevant behavioural interpretations and practical applications. We show that it is (generically) the only stochastic choice rule that satisfies Regularity and two new simple properties: Constant Expansion (if the choice probability of an alternative is the same across two menus, then it is the same in the combined menu), and Negative Expansion (if the choice probability of an alternative is less than one and differs across two menus, then it vanishes in the combined menu). By extending the theory to menu-dependent state probabilities we are able to accommodate prominent violations of Regularity such as the attraction, similarity and compromise effects.

Suggested Citation

  • Paola Manzini & Marco Mariotti, 2016. "Dual Random Utility Maximisation," Discussion Paper Series, School of Economics and Finance 201605, School of Economics and Finance, University of St Andrews, revised 12 Mar 2017.
  • Handle: RePEc:san:wpecon:1605
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    References listed on IDEAS

    as
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    Cited by:

    1. Donni, Olivier & Molina, José Alberto, 2018. "Household Collective Models: Three Decades of Theoretical Contributions and Empirical Evidence," IZA Discussion Papers 11915, Institute of Labor Economics (IZA).
    2. Demirkan, Yusufcan & Kimya, Mert, 2020. "Hazard rate, stochastic choice and consideration sets," Journal of Mathematical Economics, Elsevier, vol. 87(C), pages 142-150.

    More about this item

    Keywords

    Stochastic Choice; Attraction Effect; Similarity Effect;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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