The Focal Luce Model

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 alter-natives are relatively more likely to be chosen even after taking utili-ties 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 util-ities, 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)