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Imperfect Information, Consumer Theory, And Allocative Error In Consumption

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

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.

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File URL: http://purl.umn.edu/13742
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Paper provided by University of Minnesota, Department of Applied Economics in its series Staff Papers with number 13742.

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Date of creation: 1980
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Handle: RePEc:ags:umaesp:13742
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  1. 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 1049-91, Sept.-Oct.
  2. 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 1287-94, Nov.-Dec..
  3. Hirshleifer, Jack, 1973. "Where Are We in the Theory of Information?," American Economic Review, American Economic Association, vol. 63(2), pages 31-39, May.
  4. 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.
  5. Rothschild, Michael & Stiglitz, Joseph E., 1971. "Increasing risk II: Its economic consequences," Journal of Economic Theory, Elsevier, vol. 3(1), pages 66-84, March.
  6. Pratt, John W & Wise, David A & Zeckhauser, Richard, 1979. "Price Differences in Almost Competitive Markets," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 189-211, May.
  7. Chipman, John S & Moore, James C, 1980. "Compensating Variation, Consumer's Surplus, and Welfare," American Economic Review, American Economic Association, vol. 70(5), pages 933-49, December.
  8. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
  9. Nelson, Phillip, 1970. "Information and Consumer Behavior," Journal of Political Economy, University of Chicago Press, vol. 78(2), pages 311-29, March-Apr.
  10. 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.
  11. Karni, Edi & Schwartz, Aba, 1977. "Search theory: The case of search with uncertain recall," Journal of Economic Theory, Elsevier, vol. 16(1), pages 38-52, October.
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