Tractable consumer choice

Daniel Friedman and József Sákovics

Santa Cruz Department of Economics, Working Paper Series from Department of Economics, UC Santa Cruz

Abstract: We present a rational model of consumer choice, which can also serve as a behavioral model. The central construct is (Formula presented.), the marginal utility of money, derived from the consumer's rest-of-life problem. It provides a simple criterion for choosing a consumption bundle in a separable consumption problem. We derive a robust approximation of (Formula presented.) and show how to incorporate liquidity constraints, indivisibilities, and adaptation to a changing environment. We find connections with numerous historical and recent constructs, both behavioral and neoclassical, and draw contrasts with standard partial equilibrium analysis. The result is a better grounded, more flexible, and more intuitive description of consumer choice. © 2014 Springer Science+Business Media New York.

Keywords: Economics; Psychology and Cognitive Sciences; Philosophy and Religious Studies; Economic Theory (search for similar items in EconPapers)
Date: 2015-09-01
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Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Tractable consumer choice (2015)
Working Paper: Tractable Consumer Choice (2013)
Working Paper: Tractable Consumer Choice (2013)
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