The Imbalanced Luce Model
37 Pages Posted: 16 Feb 2018 Last revised: 27 Aug 2018
Date Written: August 23, 2018
We develop a random choice model in which a decision maker divides the alternatives she faces into two groups, where one group is focal and thus she is more likely to choose alternatives in that group relative to alternatives in the non-focal group. This model generalizes Luce’s model and naturally captures limited consideration, reference-dependent choice, salience theory, and rational inattention. The model is characterized by two simple weakenings of independence from irrelevant alternatives (IIA). We apply our model to experimental data, illustrate the importance of accounting for focus in demand estimation, and propose a simple method to identify focal sets.
Keywords: Luce’s Model, Random Choice, IIA, Salience, Reference-Dependence, Consideration Set, Nested Logit
JEL Classification: D01, D81, D9
Suggested Citation: Suggested Citation