Discrete Choice and Stochastic Utility Maximization
30 Pages Posted: 16 Oct 2002
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: Suggested Citation
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