Abstract:

Individuals behave with choice probabilities defined by a multinomial logit (MNL) probability distribution over a finite number of alternatives which includes utilities as parameters. The salient feature of the model is that probabilities depend on the choice-set, or domain. Expanding the choice-set decreases the probabilities of alternatives included in the original set, providing positive probabilities to the added alternatives. The wider probability 'spread' causes some individuals to further deviate from their higher valued alternatives, while others find the added alternatives highly valuable. For a population with diverse preferences, there exists a subset of alternatives, called the optimum choice-set, which balances [...]

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