Discrete Choice and Stochastic Utility Maximization

30 Pages Posted: 16 Oct 2002

See all articles by Ruud H. Koning

Ruud H. Koning

University of Groningen - Department of Economics

Geert Ridder

University of Southern California

Date Written: 2002

Abstract

Discrete choice models are usually derived from the assumption of random utility maximization. We consider the reverse problem, whether choice probabilities are consistent with maximization of random utilities. This leads to tests that consider the variation of these choice probabilities with the average utilities of the alternatives. By restricting the range of the average utilities we obtain a sequence of tests with fewer maintained hypotheses. In an empirical application, even the test with the fewest maintaned hypotheses rejects the hypothesis of random utility maximization.

Keywords: Discrete Choice, Stochastic Utility Maximization, Nested Multinomial Logit Model

JEL Classification: C25, D12

Suggested Citation

Koning, Ruud H. and Ridder, Geert, Discrete Choice and Stochastic Utility Maximization (2002). Available at SSRN: https://ssrn.com/abstract=325080 or http://dx.doi.org/10.2139/ssrn.325080

Ruud H. Koning (Contact Author)

University of Groningen - Department of Economics ( email )

P.O. Box 800
9700 AV Groningen
Netherlands

Geert Ridder

University of Southern California ( email )

Kaprielian Hall
Los Angeles, CA 90089
United States
213-740-2110 (Phone)
213-740-8543 (Fax)