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Imperfect Information, Consumer Theory, And Allocative Error In Consumption

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  • Kinsey, Jean D.
  • Roe, Terry L.
  • Sexauer, Benjamin

Abstract

Traditional economic theory of the consumer assumes the existence of perfect information. However, in reality this assumption is rarely fulfilled. In this paper a model is presented which relaxes this assumption and explicitly introduces the possibility of imperfect information into the theory of consumer behavior. Specifically, the focus is on consumer decision making when the utility realized form a bundle of goods and services can be different from the utility anticipated during the budget allocation process.

Suggested Citation

  • Kinsey, Jean D. & Roe, Terry L. & Sexauer, Benjamin, 1980. "Imperfect Information, Consumer Theory, And Allocative Error In Consumption," Staff Papers 13742, University of Minnesota, Department of Applied Economics.
  • Handle: RePEc:ags:umaesp:13742
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    File URL: http://purl.umn.edu/13742
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    References listed on IDEAS

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    1. Claude S. Colantoni & Otto A. Davis & Malati Swaminuthan, 1976. "Imperfect Consumers and Welfare Comparisons of Policies Concerning Information and Regulation," Bell Journal of Economics, The RAND Corporation, vol. 7(2), pages 602-615, Autumn.
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    4. Landsberger, Michael & Peled, Dan, 1977. "Duration of offers, price structure, and the gain from search," Journal of Economic Theory, Elsevier, vol. 16(1), pages 17-37, October.
    5. Peltzman, Sam, 1973. "An Evaluation of Consumer Protection Legislation: The 1962 Drug Amendments," Journal of Political Economy, University of Chicago Press, vol. 81(5), pages 1049-1091, Sept.-Oct.
    6. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
    7. Hirshleifer, Jack, 1973. "Where Are We in the Theory of Information?," American Economic Review, American Economic Association, vol. 63(2), pages 31-39, May.
    8. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-329, March-Apr.
    9. Chipman, John S & Moore, James C, 1980. "Compensating Variation, Consumer's Surplus, and Welfare," American Economic Review, American Economic Association, vol. 70(5), pages 933-949, December.
    10. John W. Pratt & David A. Wise & Richard Zeckhauser, 1979. "Price Differences in almost Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 93(2), pages 189-211.
    11. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
    12. Auld, Douglas A L, 1972. "Imperfect Knowledge and the New Theory of Demand," Journal of Political Economy, University of Chicago Press, vol. 80(6), pages 1287-1294, Nov.-Dec..
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    Keywords

    Consumer/Household Economics;

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