Decision Conflict, Power Logit, and the Deferral Outside Option

TL;DR

This paper introduces a novel class of logit models where the value of the outside option depends on the menu, capturing decision difficulty and explaining choice overload phenomena.

Contribution

It develops the power logit model with menu-dependent outside options, providing a new approach to model decision difficulty and choice deferral.

Findings

Explains non-monotonic choice-overload effects.

Shows how outside option value varies with menu context.

Provides insights for duopolistic and empirical choice analysis.

Abstract

Decision makers often opt for the deferral outside option when they find it difficult to make an active choice. Contrary to existing logit models with an outside option where the latter is assigned a fixed value exogenously, this paper introduces and studies a class of logit models where that option's value is menu-dependent, may be determined endogenously, and could be interpreted as proxying the varying degree of decision difficulty at different menus. We focus on the *power logit* special class of these models. We show that these explain some observed choice-deferral effects that are caused by hard decisions, including non-monotonic "roller-coaster" choice-overload phenomena that are regulated by the presence or absence of a clearly dominant feasible alternative. We illustrate the usability, novel insights and explanatory gains of the proposed framework for duopolistic modelling and empirical discrete choice analysis.