Identities for maximum, minimum, and maxmin random utility models

We generalize Roy’s identity for discrete choice models, focusing on the worst choices. To do so, we derive a relation between the expected minimum utility and the worst choice probabilities for additive random utility models. We extend this relationship to maxmin random utility models, applying thi...

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Bibliographic Details
Published in:Economics letters 2017-06, Vol.155, p.135-139
Main Authors: de Palma, André, Kilani, Karim
Format: Article
Language:English
Subjects:
Ambiguity
Ambiguity aversion
Decision making models
Discrete choice
Economic models
Identity
Maxmin utility
Minimum utility
Multinomial logit model
Quantitative Finance
Random utility models
Roy’s identities
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Summary:We generalize Roy’s identity for discrete choice models, focusing on the worst choices. To do so, we derive a relation between the expected minimum utility and the worst choice probabilities for additive random utility models. We extend this relationship to maxmin random utility models, applying this framework to model ambiguity in a discrete choice setting. •We derive an identity relating worst choice probabilities to best choice probabilities.•A similar identity is relating expected minimum utilities to expected maximum utilities.•Expected minimum utility and best choice probabilities are related by a Roy’s type identity.•We build a new discrete choice model: the maxmin logit model.
ISSN:0165-1765
1873-7374
DOI:10.1016/j.econlet.2017.03.018