Advanced Search
MyIDEAS: Login to save this paper or follow this series

Case-Based Consumer Theory


Author Info

  • Itzhak Gilboa
  • David Schmeidler


The neo-classical theory of consumer behavior, while a powerful tool, suffers from some well-known flaws. Specifically, it assumes a highly, often unrealistically rational utility-maximizing consumer and sheds little light on the dynamic nature of consumption decisions. In this paper we make some preliminary steps towards an alternative theory of consumer choices, restricted to the case of repeated "small" decisions. We assume that the consumer is choosing among products, rather than bundles, and that (s)he is a "case-based decision maker." In particular, such a consumer is not necessarily "optimizing" and may be "satisficing' in the sense of March and Simon (1958). The aggregation of choices among products implicitly defines a choice of a "bundle." It turns out that if the "aspiration level" of the consumer is relatively low, (s)he tends to be satisficed and may choose a "corner" solution, which is not necessarily "utility Maximizing" in the classical sense. If, however, the aspiration level is relatively high, the consumer keeps switching among the products, and their relative frequencies converge to an interior point in the bundles space, as suggested by the classical theory under the assumption of convex preferences. Furthermore, in our model we find that the "utility" of a product is closely related to the (limit) relative frequency with which it is consumed. Thus this model offers a new definition of a product's "utility," as a cardinal measure of desirability. To study the effect of changes in market conditions, we propose to incorporate a product's price directly into its utility. According to this view, the consumer does not consider the "utility" of each product (or bundle) as separate from the budget constraint. Rather, the fact that a certain product is expensive is implicitly assumed to alter the experience of consuming it. It follows that the consumer's reaction to price changes is "immediate," and does not require to (implicitly) solve the new optimization problem. Moreover, such a consumer may well respond to price changes without necessarily maximizing his/her utility subject to the budget constraint. Next we study the relationship between the weight attached to the price in the (linear) evaluation of a product and the budget constraint. We show that, under certain reasonable conditions, the total expenditure is a decreasing function of this parameter and it follows that there exists a unique value for this parameter which balances the consumer's budget. Finally, we introduce the notion of the "potential" of the utility function, which is akin to the neo-classical utility function. We model substitution and complementarity effects, which are related to the cross derivatives of the potential.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL:
File Function: main text
Download Restriction: no

Bibliographic Info

Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1025.

as in new window
Date of creation: Feb 1993
Date of revision:
Handle: RePEc:nwu:cmsems:1025

Contact details of provider:
Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Phone: 847/491-3527
Fax: 847/491-2530
Web page:
More information through EDIRC

Order Information:

Related research



References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Itzhak Gilboa, 1991. "Rationality and Ascriptive Science," Discussion Papers 943, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Gilboa, Itzhak & Schmeidler, David, 1995. "Case-Based Decision Theory," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 605-39, August.
Full references (including those not matched with items on IDEAS)


Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Itzhak Gilboa & David Schmeidler, 1996. "Act similarity in case-based decision theory (*)," Economic Theory, Springer, vol. 9(1), pages 47-62.
  2. Falmagne, J. -C., 1996. "A stochastic theory for the emergence and the evolution of preference relations," Mathematical Social Sciences, Elsevier, vol. 31(2), pages 63-84, April.
  3. Itzhak Gilboa & Amit Pazgal, 1995. "History Dependent Brand Switching: Theory and Evidence," Discussion Papers 1146, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Ken Binmore & Larry Samuelson, . "Muddling Through: Moisy Equlibrium Selection," ELSE working papers 036, ESRC Centre on Economics Learning and Social Evolution.
  5. David Schmeidler & Itzhak Gilboa, 1994. "Reaction to Price Changes and Aspiration Level Adjustments," Working Papers 023, Ohio State University, Department of Economics.
  6. Gilboa, Itzhak & Schmeidler, David, 1996. "Case-Based Optimization," Games and Economic Behavior, Elsevier, vol. 15(1), pages 1-26, July.
  7. F. de Vries, 1999. "The Behavioral Firm and Its Internal Game: Evolutionary Dynamics of Decision Making," Working Papers ir99036, International Institute for Applied Systems Analysis.
  8. Enriqueta Aragones, 1993. "A Dynamic Model of Multiparty Competition," Discussion Papers 1044, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  9. Blonski, Matthias, 1999. "Social learning with case-based decisions," Journal of Economic Behavior & Organization, Elsevier, vol. 38(1), pages 59-77, January.
  10. Enriqueta Aragones, 1997. "Negativity Effect and the Emergence of Ideologies," Journal of Theoretical Politics, , vol. 9(2), pages 189-210, April.
  11. Enriqueta Aragon├ęs, 1994. "Negativity effect in multiparty electoral competition," Economics Working Papers 273, Department of Economics and Business, Universitat Pompeu Fabra, revised Sep 1997.


This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.


Access and download statistics


When requesting a correction, please mention this item's handle: RePEc:nwu:cmsems:1025. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fran Walker).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.