The Focal Luce Model

Abstract

We introduce the Focal Luce Model (FLM), a random choice model that generalizes Luce’s (1959) model (multinomial logit) to account for menu-dependent focality of alternatives. In the FLM, focal alternatives are relatively more likely to be chosen even after taking utilities into account. The FLM captures a variety of bounded rationality models while behaviorally distinguishing between what is focal and the magnitude of the bias from focality. We show how to identify utilities, focal sets, and bias terms from choice frequencies; behaviorally characterize the FLM by weakening Luce’s (1959) independence from irrelevant alternatives; and apply our model to choice data and games. (JEL C70, D11, D91)