Cycle conditions for "Luce rationality"
We extend and refine conditions for 'Luce rationality' (i.e., the existence of a Luce - or logit - model) in the context of stochastic choice. When choice probabilities satisfy positivity, we show that the cyclical independence (CI) condition of Ahumada and Ülkü (2018) and Echenique and Saito (2019) is necessary and sufficient for Luce rationality, even if choice is only observed for a restricted set of menus. We then adapt results from the cycles approach (Rodrigues-Neto, 2009) to the common prior problem (Harsanyi, 1967-1968) to refine the CI condition, by reducing the number of cycle equations that need to be checked. A general algorithm is provided to identify a minimal sufficient set of equations (depending on the collection of menus for which choice is observed). Three cases are discussed in detail: (i) when choice is only observed from binary menus, (ii) when all menus contain a common default; and (iii) when all menus contain an element from a common binary default set. Investigation of case (i) leads to a refinement of the famous product rule.
Year of publication: |
2024
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Authors: | Rodrigues Neto, José Alvaro ; Ryan, Matthew Joseph ; Taylor, James |
Publisher: |
Auckland : Auckland University of Technology (AUT), Faculty of Business, Economics and Law |
Saved in:
freely available
Series: | Economics Working Paper Series ; 2024/03 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | 1884584438 [GVK] |
Source: |
Persistent link: https://www.econbiz.de/10014551654
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