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Dogit model and rational inattention

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  • Nchare, Karim

Abstract

This paper establishes an equivalence result between the Dogit model and the rational inattention model. The Dogit choice model introduced by Gaudry and Dagenais (1979) is an extension of the multinomial logit model which can potentially violate the independence of irrelevant alternatives axiom and allow for captive or inattentive behaviors. McFadden (1981) argues that a drawback of the Dogit model is its inconsistency with the standard random utility framework. We show that when the information cost is modeled using a generalized Shannon entropy function, the Dogit model is observationally equivalent to a rational inattention model.

Suggested Citation

  • Nchare, Karim, 2021. "Dogit model and rational inattention," Economics Letters, Elsevier, vol. 205(C).
    • Handle: RePEc:eee:ecolet:v:205:y:2021:i:c:s0165176521002317
    DOI: 10.1016/j.econlet.2021.109954
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    References listed on IDEAS

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    1. Kannan, P. K. & Yim, Chi Kin (Bennett), 2001. "An investigation of the impact of promotions on across-submarket competition," Journal of Business Research, Elsevier, vol. 53(3), pages 137-149, September.
    2. Mogens Fosgerau & Emerson Melo & André de Palma & Matthew Shum, 2020. "Discrete Choice And Rational Inattention: A General Equivalence Result," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(4), pages 1569-1589, November.
    3. Small, Kenneth A, 1987. "A Discrete Choice Model for Ordered Alternatives," Econometrica, Econometric Society, vol. 55(2), pages 409-424, March.
    4. Marc J. I. Gaudry, 1980. "Dogit and Logit Models of Travel Mode Choice in Montreal," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 268-279, May.
    5. Filip Matêjka & Alisdair McKay, 2015. "Rational Inattention to Discrete Choices: A New Foundation for the Multinomial Logit Model," American Economic Review, American Economic Association, vol. 105(1), pages 272-298, January.
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    More about this item

    Keywords

    Discrete choice; Dogit model; Multinomial logit; Rational inattention;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D10 - Microeconomics - - Household Behavior - - - General

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