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The complexity of the consumer problem

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  • Gilboa, Itzhak
  • Postlewaite, Andrew
  • Schmeidler, David

Abstract

A literal interpretation of neo-classical consumer theory suggests that the consumer solves a very complex problem. In the presence of indivisible goods, the consumer problem is NP-Hard, and it appears unlikely that it can be optimally solved by a human. Two implications of this observation are that (i) households may imitate each other’s choices; (ii) households may adopt heuristics that give rise to the phenomenon of mental accounting.

Suggested Citation

  • Gilboa, Itzhak & Postlewaite, Andrew & Schmeidler, David, 2021. "The complexity of the consumer problem," Research in Economics, Elsevier, vol. 75(1), pages 96-103.
    • Handle: RePEc:eee:reecon:v:75:y:2021:i:1:p:96-103
    DOI: 10.1016/j.rie.2021.01.001
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    References listed on IDEAS

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