Choice-Theoretic Foundations of the Divisive Normalization Model

34 Pages Posted: 23 Oct 2017 Last revised: 13 Dec 2018

See all articles by Kai Steverson

Kai Steverson

New York University (NYU)

Adam Brandenburger

NYU Stern School of Business

Paul Glimcher

New York University (NYU) - Center for Neuroeconomics

Date Written: November 9, 2018

Abstract

Abstract Recent advances in neuroscience suggest a utility-like calculation is involved in how the brain makes choices, and that this calculation may use a computation known as divisive normalization. While this tells us how the brain makes choices, it is not immediately evident why the brain uses this computation or exactly what behavior is consistent with it. In this paper, we address both of these questions by proving a three-way equivalence theorem between the normalization model, an information-processing model, and an axiomatic characterization. The information-processing model views behavior as optimally balancing the expected value of the chosen object against the entropic cost of reducing stochasticity in choice. This provides an optimality rationale for why the brain may have evolved to use normalization. The axiomatic characterization gives a set of testable behavioral statements equivalent to the normalization model. This answers what behavior arises from normalization. Our equivalence result unifies these three models into a single theory that answers the “how”, “why”, and “what” of choice behavior.

Keywords: Neuroeconomics, Decision Theory, Axioms, Stochastic Choice, Luce Rule

JEL Classification: D87, D81

Suggested Citation

Steverson, Kai and Brandenburger, Adam M. and Glimcher, Paul, Choice-Theoretic Foundations of the Divisive Normalization Model (November 9, 2018). Available at SSRN: https://ssrn.com/abstract=3056332 or http://dx.doi.org/10.2139/ssrn.3056332

Kai Steverson (Contact Author)

New York University (NYU) ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Adam M. Brandenburger

NYU Stern School of Business ( email )

44 West 4th Street
New York, NY 10012
United States

HOME PAGE: http://www.stern.nyu.edu/~abranden

Paul Glimcher

New York University (NYU) - Center for Neuroeconomics ( email )

4 Washington Place, Room 809
New York, NY 10003
United States

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