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Heuristics as Decision Rules - Part I: The Cobb Douglas Consumer

Author

Listed:
  • Werner G³th

    (Humboldt University Berlin)

  • Wilhelm Neuefeind

    (Washington University in St.\Louis)

Abstract

Many consumption prices are highly volatile. It would certainly overburden our cognitive system to fully adjust to all these changes. Households therefore often rely on simple heuristics when deciding what to consume, e.g. in the form of a constant budget share for a specific consumption commodity, like a vacation, or of a constant consumption amount for low-cost commodities as food items. Using utility functions we can measure the welfare loss, caused by such heuristics, and to what extent this can be reduced by adaptation. In the present Part I the analysis is mainly restricted to a single consumerá with a Cobb-Douglas utility function. General utility functions will also be considered. Part II will study exchange economies

Suggested Citation

  • Werner G³th & Wilhelm Neuefeind, 2001. "Heuristics as Decision Rules - Part I: The Cobb Douglas Consumer," Homo Oeconomicus, Institute of SocioEconomics, vol. 18, pages 177-197.
  • Handle: RePEc:hom:homoec:v:18:y:2001:p:177-197
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    References listed on IDEAS

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    1. James W. Friedman, 1965. "An Experimental Study of Cooperative Duopoly," Cowles Foundation Discussion Papers 192, Cowles Foundation for Research in Economics, Yale University.
    2. Huck, Steffen & Normann, Hans-Theo & Oechssler, Jorg, 1999. "Learning in Cournot Oligopoly--An Experiment," Economic Journal, Royal Economic Society, vol. 109(454), pages 80-95, March.
    3. Fernando Vega-Redondo, 1999. "Markets under bounded rationality: from theory to facts," Investigaciones Economicas, Fundación SEPI, vol. 23(1), pages 3-26, January.
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