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The axiomatic foundation of logit and its relation to behavioral welfare

Yves Breitmoser ()

MPRA Paper from University Library of Munich, Germany

Abstract: Multinomial logit is the canonical model of discrete choice and widely used to analyze preferences and welfare. Its axiomatic foundation is incomplete: binomial logit is assumed; independence of irrelevant alternatives extends logit to multinomial choice. The present paper provides a self-contained foundation, showing that the axiom "binomial choice is logit" is behaviorally founded by "narrow bracketing" and "no systematic mistakes" (e.g. default effects). This in turn allows me to drop the no-mistakes axiom, yielding generalized logit accounting for systematic mistakes axiomatically consistently. The results position logit in the "mistakes-debate" in behavioral welfare and clarify the foundation for the functional form.

Keywords: logit; axiomatic foundation; discrete choice; utility estimation; welfare (search for similar items in EconPapers)
JEL-codes: D03 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dcm, nep-ecm and nep-upt
Date: 2016-05-28
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