Tractable consumer choice

Daniel Friedman, Jozsef Sakovics

Research output: Contribution to journalArticlepeer-review

Abstract

We present a rational model of consumer choice, which can also serve as a behavioral model. The central construct is TeX , 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 TeX 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.
Original languageEnglish
Pages (from-to)333-358
Number of pages25
JournalTheory and Decision
Volume79
Issue number2
Early online date14 Aug 2014
DOIs
Publication statusPublished - Sep 2015

Keywords

  • separable decisions
  • distributed choice
  • moneysworth demand
  • value for money

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