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The axiomatic foundation of logit and its relation to behavioral welfare

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  • Breitmoser, Yves

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.

Suggested Citation

  • Breitmoser, Yves, 2016. "The axiomatic foundation of logit and its relation to behavioral welfare," MPRA Paper 71632, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:71632
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    Cited by:

    1. Breitmoser, Yves, 2017. "Discrete Choice with Presentation Effects," Rationality and Competition Discussion Paper Series 35, CRC TRR 190 Rationality and Competition.
    2. Breitmoser, Yves, 2016. "Stochastic choice, systematic mistakes and preference estimation," MPRA Paper 72779, University Library of Munich, Germany.

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    More about this item

    Keywords

    logit; axiomatic foundation; discrete choice; utility estimation; welfare;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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