[gov3009-l] McKay on "A New Foundation for the Multinomial Logit Model"

Matt Blackwell mblackwell at iq.harvard.edu
Mon Mar 28 09:43:07 EDT 2011

Hi all,

We hope that you can join us for the Applied Statistics Workshop this
Wednesday, March 30th, 2011 when we will be happy to have Alisdair
McKay from the Department of Economics at Boston University. You will
find an abstract and link to the paper below. As always, we will serve
a light lunch and the talk will begin around 12:15p.

“Rational Inattention to Discrete Choices: A New Foundation for the
Multinomial Logit Model”
Alisdair McKay
Department of Economics, Boston University
CGIS K354 (1737 Cambridge St.)
Wednesday, March 30th, 2011 12 noon

Often, individuals must choose among discrete alternatives with
imperfect information about their values, such as selecting a job
candidate, a vehicle or a university. Before choosing, they may have
an opportunity to study the options, but doing so is costly. This
costly information acquisition creates new choices such as the number
of and types of questions to ask the job candidates. We model these
situations using the tools of the rational inattention approach to
information frictions (Sims, 2003). We nd that the decision maker's
optimal strategy results in choosing probabilistically exactly in line
with the multinomial logit model. This provides a new interpretation
for a workhorse model of discrete choice theory. We also study cases
for which the multinomial logit is not applicable, in particular when
two options are duplicates. In such cases, our model generates a
generalization of the logit formula, which is free of the limitations
of the standard logit.

Paper: http://people.bu.edu/amckay/pdfs/logit.pdf


Matthew Blackwell
PhD Candidate
Institute for Quantitative Social Science
Department of Government
Harvard University
url: http://people.fas.harvard.edu/~blackwel/

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