Dogit model and rational inattention

Abstract

This paper establishes an equivalence result between the Dogit model and the rational inattention model. The Dogit choice model introduced by Gaudry and Dagenais (1979) is an extension of the multinomial logit model which can potentially violate the independence of irrelevant alternatives axiom and allow for captive or inattentive behaviors. McFadden (1981) argues that a drawback of the Dogit model is its inconsistency with the standard random utility framework. We show that when the information cost is modeled using a generalized Shannon entropy function, the Dogit model is observationally equivalent to a rational inattention model.