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Boundedly rational demand

Author

Listed:
  • Kocourek, Pavel

    (Department of Microeconomics at University Duisburg-Essen)

  • Steiner, Jakub

    (Department of economics at University of Zurich, CERGE-EI, and CTS)

  • Stewart, Colin

    (Department of Economics, University of Toronto)

Abstract

Evidence suggests that consumers do not perfectly optimize, contrary to a critical assumption of classical consumer theory. We propose a model in which consumer types can vary in both their preferences and their choice behavior. Given data on demand and the distribution of prices, we identify the set of possible values of the consumer surplus based on minimal rationality conditions: every type of consumer must be no worse off than if they either always bought the good or never did. We develop a procedure to narrow the set of surplus values using richer datasets and provide bounds on counterfactual demands.

Suggested Citation

  • Kocourek, Pavel & Steiner, Jakub & Stewart, Colin, 2024. "Boundedly rational demand," Theoretical Economics, Econometric Society, vol. 19(4), November.
    • Handle: RePEc:the:publsh:5796
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    References listed on IDEAS

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    More about this item

    Keywords

    Consumer theory; bounded rationality; information design;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D6 - Microeconomics - - Welfare Economics
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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