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Tractable consumer choice

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  • Friedman, Daniel
  • Sákovics, József

Abstract

We present a rational model of consumer choice, which can also serve as a behavioral model. The central construct is (Formula presented.), 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 (Formula presented.) 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. © 2014 Springer Science+Business Media New York.

Suggested Citation

  • Friedman, Daniel & Sákovics, József, 2015. "Tractable consumer choice," Santa Cruz Department of Economics, Working Paper Series qt5kq1w4jv, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt5kq1w4jv
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    Cited by:

    1. Roberto Burguet & József Sákovics, 2019. "Bidding For Talent In Sport," Economic Inquiry, Western Economic Association International, vol. 57(1), pages 85-102, January.
    2. Sákovics, József, 2015. "Tractable valuations under uncertainty," Economics Letters, Elsevier, vol. 126(C), pages 68-70.
    3. Zhang, Yongfeng & Zhang, Yi & Friedman, Daniel, 2017. "Economic recommendation based on pareto efficient resource allocation," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2017-503, WZB Berlin Social Science Center.
    4. Sákovics, József, 2014. "Tractable valuations under uncertainty," 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN 2015-41, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    5. Zhang, Yongfeng & Zhao, Qi & Zhang, Yi & Friedman, Daniel & Zhang, Min & Liu, Yiqun & Ma, Shaoping, 2016. "Economic recommendation with surplus maximization," Discussion Papers, Research Professorship Market Design: Theory and Pragmatics SP II 2016-502, WZB Berlin Social Science Center.

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    More about this item

    Keywords

    Economics; Psychology and Cognitive Sciences; Philosophy and Religious Studies; Economic Theory;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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