The Axiomatic Foundation of Logit

Yves Breitmoser ()

No 78, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

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.

Keywords: stochastic choice, logit, axiomatic foundation; behavioral evidence; utility estimation (search for similar items in EconPapers)
JEL-codes: C13 D03 (search for similar items in EconPapers)
Date: 2018-03-07
New Economics Papers: this item is included in nep-dcm, nep-ecm, nep-ore, nep-tre and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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