The Imbalanced Luce Model

37 Pages Posted: 16 Feb 2018 Last revised: 27 Aug 2018

See all articles by Matthew Kovach

Matthew Kovach

Virginia Polytechnic Institute & State University - Department of Economics

Gerelt Tserenjigmid

Virginia Polytechnic Institute & State University

Date Written: August 23, 2018

Abstract

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

Kovach, Matthew and Tserenjigmid, Gerelt, The Imbalanced Luce Model (August 23, 2018). Available at SSRN: https://ssrn.com/abstract=3125204 or http://dx.doi.org/10.2139/ssrn.3125204

Matthew Kovach (Contact Author)

Virginia Polytechnic Institute & State University - Department of Economics ( email )

3016 Pamplin Hall (0316)
880 West Campus Drive
Blacksburg, VA 24061
United States

Gerelt Tserenjigmid

Virginia Polytechnic Institute & State University ( email )

Blacksburg, VA 24061
United States

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