Tractable consumer choice

Daniel Friedman, Jozsef Sakovics

Research output: Working paperDiscussion paper

Abstract

We present a rational model of consumer choice, which can also serve as a behavioral model. The central construct is (symbol), 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 (symbol), 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
PublisherEdinburgh School of Economics Discussion Paper Series
Number of pages26
Publication statusPublished - 2014

Publication series

NameESE Discussion Papers
No.240

Keywords

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

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  • Tractable consumer choice

    Friedman, D. & Sakovics, J., Sep 2015, In: Theory and Decision. 79, 2, p. 333-358 25 p.

    Research output: Contribution to journalArticlepeer-review

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