2021/12/14 by Matthew Kovach, Kovach, Matthew, Gerelt Tserenjigmid +1 · 1 citation
Decision Sciences · Economics, Econometrics and Finance · #Decision-Making and Behavioral Economics #Econometrics (econ.EM) #Economic and Environmental Valuation #FOS: Economics and business #Game Theory and Voting Systems #Theoretical Economics (econ.TH)
paper · pdf · doi:10.48550/arxiv.2112.07155
openalex publication_date 2021/12/14 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We provide the first behavioral characterization of nested logit, a foundational and widely applied discrete choice model, through the introduction of a non-parametric version of nested logit that we call Nested Stochastic Choice (NSC). NSC is characterized by a single axiom that weakens Independence of Irrelevant Alternatives based on revealed similarity to allow for the similarity effect. Nested logit is characterized by an additional menu-independence axiom. Our axiomatic characterization leads to a practical, data-driven algorithm that identifies the true nest structure from choice data. We also discuss limitations of generalizing nested logit by studying the testable implications of cross-nested logit.