Equivalent Logit Choice Probabilities from Optimization and Randomization

Martí Mestieri Ferrer and Jordan J. Norris

No 1547, Working Papers from Barcelona School of Economics

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.

Keywords: discrete choice; entropy; logit; Stirling's Approximation (search for similar items in EconPapers)
JEL-codes: C25 C60 D61 (search for similar items in EconPapers)
Date: 2026-01
New Economics Papers: this item is included in nep-dcm
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