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Tractable Consumer Choice

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Abstract

We derive a rational model of separable consumer choice which can also serve as a behavioral model. The central construct is lambda, the marginal utility of money, derived from the consumer's rest-of-life problem. We present a robust approximation of lambda, 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.

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  • Daniel Friedman & Jozsef Sakovics, 2013. "Tractable Consumer Choice," ESE Discussion Papers 240, Edinburgh School of Economics, University of Edinburgh.
  • Handle: RePEc:edn:esedps:240
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    References listed on IDEAS

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    Cited by:

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

    More about this item

    Keywords

    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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