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  4. August 2022
  5. The Focal Luce Model

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

The Focal Luce Model

  • Matthew Kovach
  • Gerelt Tserenjigmid
American Economic Journal: Microeconomics
vol. 14, no. 3, August 2022
(pp. 378–413)
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Abstract

We introduce the Focal Luce Model (FLM), a random choice model that generalizes Luce's (1959) model (multinomial logit) to account for menu-dependent focality of alternatives. In the FLM, focal alternatives are relatively more likely to be chosen even after taking utilities into account. The FLM captures a variety of bounded rationality models while behaviorally distinguishing between what is focal and the magnitude of the bias from focality. We show how to identify utilities, focal sets, and bias terms from choice frequencies; behaviorally characterize the FLM by weakening Luce's (1959) independence from irrelevant alternatives; and apply our model to choice data and games.

Citation

Kovach, Matthew, and Gerelt Tserenjigmid. 2022. "The Focal Luce Model." American Economic Journal: Microeconomics, 14 (3): 378–413. DOI: 10.1257/mic.20200111

Additional Materials

JEL Classification

  • C70 Game Theory and Bargaining Theory: General
  • D11 Consumer Economics: Theory
  • D91 Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
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