@booklet {sheshinski-loic2010,
	title = {Limits on Individual Choice},
	howpublished = {Discussion Papers},
	year = {2010},
	month = {6},
	abstract = {Individuals behave with choice probabilities defined by a multinomial logit (MNL) probability distribution over a finite number of alternatives which includes utilities as parameters. The salient feature of the model is that probabilities depend on the choice-set, or domain. Expanding the choice-set decreases the probabilities of alternatives included in the original set, providing positive probabilities to the added alternatives. The wider probability {\textquoteright}spread{\textquoteright} causes some individuals to fur- ther deviate from their higher valued alternatives, while others find the added alternatives highly valuable. For a population with diverse preferences, there ex- ists a subset of alternatives, called the optimum choice-set, which balances these considerations to maximize social welfare. The paper analyses the dependence of the optimum choice-set on a parameter which specifies the precision of individuals{\textquoteright} choice ({\textquoteright}degree of rationality{\textquoteright}). It is proved that for high values of this parame- ter the optimum choice-set includes all alternatives, while for low values it is a singleton. Numerical examples demonstrate that for intermediate values, the size and possible nesting of the optimum choice-sets is complex. Governments have various means (defaults, tax/subsidy) to directly a{\textquoteright}{\textquoteright}{\textquoteright}{\textquoteright}ect choice probabilities. This is modelled by {\textquoteright}probability weight{\textquoteright}parameters. The paper analyses the structure of the optimum weights, focusing on the possible exclusion of alternatives. A binary example explores the level of {\textquoteright}type one{\textquoteright}and {\textquoteright}type two{\textquoteright}errors which justify the imposition of early eligibility for retirement benefits, common to social security systems. Finally, the e{\textquoteright}{\textquoteright}{\textquoteright}{\textquoteright}ects of heterogeneous degrees of rationality among individuals are briefly discussed.},
	url = {/files/db554.pdf},
	author = {Eytan Sheshinski}
}
