The axiomatic foundation of logit and its relation to behavioral welfare

Breitmoser, Yves (2016): The axiomatic foundation of logit and its relation to behavioral welfare.

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.

• Item Type: MPRA Paper
• Language: English
• Keywords: logit, axiomatic foundation, discrete choice, utility estimation, welfare
• Subjects: D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles

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