Heuristics as Decison Rules - Part I: The Single Consumer

W. Guth and W. Neuefeind

Working Papers from Flinders of South Australia - Discipline of Economics

Abstract: Many consumption prices are highly volatile. It would certainly overburden our cognitive system to fully adjust to all these changes. Households therefore often rely on simple heuristics when deciding what to consume, e.g. in the form of a constant budget share for a specific consumption commodity, like a vocation, or of a constantconsumption amounty for low-cost commodities as food items. Using utility functions we can measure the welfare loss, caused by such heuristics, and to what extent this can be reduced by adaptation.

Keywords: DECISION MAKING; PRICING; CONSUMPTION; ECONOMIC MODELS (search for similar items in EconPapers)
JEL-codes: D11 D10 D12 (search for similar items in EconPapers)
Date: 2001
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