IDEAS home Printed from https://ideas.repec.org/a/bpj/bejtec/v9y2009i1n3.html
   My bibliography  Save this article

Why (and When) are Preferences Convex? Threshold Effects and Uncertain Quality

Author

Listed:
  • Smith Trenton G.

    () (Washington State University)

  • Tasnádi Attila

    () (Corvinus University of Budapest)

Abstract

It is often assumed (for analytical convenience, but also in accordance with common intuition) that consumer preferences are convex. In this paper, we consider circumstances under which such preferences are (or are not) optimal. In particular, we investigate a setting in which goods possess some hidden quality with known distribution, and the consumer chooses a bundle of goods that maximizes the probability that he receives some threshold level of this quality. We show that if the threshold is small relative to consumption levels, preferences will tend to be convex; whereas the opposite holds if the threshold is large. Our theory helps explain a broad spectrum of economic behavior (including, in particular, certain common commercial advertising strategies), suggesting that sensitivity to information about thresholds is deeply rooted in human psychology.

Suggested Citation

  • Smith Trenton G. & Tasnádi Attila, 2009. "Why (and When) are Preferences Convex? Threshold Effects and Uncertain Quality," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-24, January.
    • Handle: RePEc:bpj:bejtec:v:9:y:2009:i:1:n:3
    as

    Download full text from publisher

    File URL: https://www.degruyter.com/view/j/bejte.2009.9.1/bejte.2009.9.1.1518/bejte.2009.9.1.1518.xml?format=INT
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:9:y:2009:i:1:n:3. 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: (Peter Golla). General contact details of provider: https://www.degruyter.com .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.