Person:

Strzalecki, Tomasz

We characterize a generalization of discounted logistic choice that incorporates a parameter to capture different views the agent might have about the costs and benefits of larger choice sets. The discounted logit model used in the empirical literature is the special case that displays a “preference for flexibility” in the sense that the agent always prefers to add additional items to a menu. Other cases display varying levels of “choice aversion,” where the agent prefers to remove items from a menu if their ex ante value is below a threshold. We show that higher choice aversion, as measured by dislike of bigger menus, also corresponds to an increased preference for putting off decisions as late as possible.

Perturbed utility functions—the sum of expected utility and a nonlinear perturbation function—provide a simple and tractable way to model various sorts of stochastic choice. We provide two easily understood conditions each of which characterizes this representation: One condition generalizes the acyclicity condition used in revealed preference theory, and the other generalizes Luce’s IIA condition. We relate the discrimination or selectivity of choice rules to properties of their associated perturbations, both across different agents and across decision problems. We also show that these representations correspond to a form of ambiguity-averse preferences for an agent who is uncertain about her true utility.