Random Choice as Behavioral Optimization

Faruk Gul, Paulo Natenzon, Wolfgang Pesendorfer

Econometrica · 2014 · Volume 82 · Issue 5

Abstract

We develop an extension of Luce's random choice model to study violations of the weak axiom of revealed preference. We introduce the notion of a stochastic preference and show that it implies the Luce model. Then, to address well-known difficulties of the Luce model, we define theattribute ruleand establish that the existence of a well-defined stochastic preference over attributes characterizes it. We prove that the set of attribute rules and random utility maximizers are essentially the same. Finally, we show that both the Luce and attribute rules have a unique consistent extension to dynamic problems.

Keywords

Luce rule, attribute rule, random utility, dynamic random choice

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