Equivalent Logit Choice Probabilities from Optimization and Randomization

Marti Mestieri and Jordan Norris

No 21030, CEPR Discussion Papers from Centre for Economic Policy Research

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: welfare is strictly lower under randomization, since only optimizing agents select into options with favorable realizations of idiosyncratic shocks.

Keywords: Entropy; Logit (search for similar items in EconPapers)
JEL-codes: C25 C60 D61 (search for similar items in EconPapers)
Date: 2026-01
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