The Generalized Stochastic Preference Choice Model

Abstract

We propose a new discrete choice model that generalizes the random utility model (RUM). We show that this model, called the \emph{Generalized Stochastic Preference} (GSP) model can explain several choice phenomena that can't be represented by a RUM. In particular, the model can easily (and also exactly) replicate some well known examples that are not RUM, as well as controlled choice experiments carried since 1980's that possess strong regularity violations. One such regularity violation is the \emph{decoy effect} in which the probability of choosing a product increases when a similar, but inferior product is added to the choice set. An appealing feature of the GSP is that it is non-parametric and therefore it has very high flexibility. The model has also a simple description and interpretation: it builds upon the well known representation of RUM as a stochastic preference, by allowing some additional consumer types to be non-rational.