# Tractable consumer choice

## Author

Listed:
• Daniel Friedman
• József Sákovics

()

## Abstract

We present a rational model of consumer choice, which can also serve as a behavioral model. The central construct is $$\lambda$$ λ , 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 $$\lambda$$ λ 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. Copyright Springer Science+Business Media New York 2015

## Suggested Citation

• Daniel Friedman & József Sákovics, 2015. "Tractable consumer choice," Theory and Decision, Springer, vol. 79(2), pages 333-358, September.
• Handle: RePEc:kap:theord:v:79:y:2015:i:2:p:333-358
DOI: 10.1007/s11238-014-9461-0
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File URL: http://hdl.handle.net/10.1007/s11238-014-9461-0

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## References listed on IDEAS

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## Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:

1. Sákovics, József, 2015. "Tractable valuations under uncertainty," Economics Letters, Elsevier, vol. 126(C), pages 68-70.

### Keywords

Separable decisions; Distributed choice; Moneysworth demand; Value for money;

### 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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