Tractable consumer choice

Daniel Friedman and József Sákovics

Theory and Decision, 2015, vol. 79, issue 2, 333-358

Abstract: We present a rational model of consumer choice, which can also serve as a behavioral model. The central construct is $$\lambda $$ λ , 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 $$\lambda $$ λ 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. Copyright Springer Science+Business Media New York 2015

Keywords: Separable decisions; Distributed choice; Moneysworth demand; Value for money (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Working Paper: Tractable consumer choice (2015)
Working Paper: Tractable Consumer Choice (2013)
Working Paper: Tractable Consumer Choice (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:theord:v:79:y:2015:i:2:p:333-358

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DOI: 10.1007/s11238-014-9461-0

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