Random Utility Model

A Random Utility Model is a way to understand how people make choices among various options. It assumes that each person evaluates each alternative and assigns a certain “utility” or satisfaction level, but this evaluation includes some randomness because of unmeasured factors or personal preferences. The model predicts that individuals choose the option with the highest perceived utility, acknowledging that choices can vary due to unpredictable influences. It’s widely used in economics and marketing to analyze decision-making behaviors, helping to forecast how people might respond to different scenarios or policy changes.