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Sunk costs of consumer search: economic rationality of satisficing decision

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  • Malakhov, Sergey

Abstract

The paper argues that sunk costs’ sensitivity can lead to the optimal consumption-leisure choice under price dispersion. The increase in quantity to be purchased with the extension of the time horizon of the consumption-leisure choice equalizes marginal costs of search with its marginal benefits. The implicit optimal choice results in the explicit satisficing decision. The transformation of cognitive mechanism of discouragement into satisficing happens only in the “common model” of consumer behavior. The paper argues that the cognitive mechanism of aspiration takes place when consumers try to get marginal savings on purchase greater than the wage rate and, therefore, they follow the “leisure model” of behavior where both the marginal utility of labor income and the marginal utility of consumption become negative.

Suggested Citation

  • Malakhov, Sergey, 2014. "Sunk costs of consumer search: economic rationality of satisficing decision," MPRA Paper 53493, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:53493
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    File URL: https://mpra.ub.uni-muenchen.de/60357/1/MPRA_paper_55089.pdf
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    References listed on IDEAS

    as
    1. Stiglitz, J E, 1979. "Equilibrium in Product Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 69(2), pages 339-345, May.
    2. Kogut, Carl A., 1990. "Consumer search behavior and sunk costs," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 381-392, December.
    3. Mark Aguiar & Erik Hurst, 2007. "Life-Cycle Prices and Production," American Economic Review, American Economic Association, vol. 97(5), pages 1533-1559, December.
    4. Sergey Malakhov, 2014. "Satisficing Decision Procedure and Optimal Consumption-Leisure Choice," International Journal of Social Science Research, Macrothink Institute, vol. 2(2), pages 138-151, September.
    5. S. Malakhov., 2003. "Transaction Costs, Economic Growth and Labor Supply," VOPROSY ECONOMIKI, N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 9.
    6. Malakhov, Sergey, 2013. "Money flexibility and optimal consumption-leisure choice under price dispersion," MPRA Paper 45197, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Sergey MALAKHOV, 2015. "Propensity to Search: Common, Leisure, and Labor Models of Consumer Behavior," Expert Journal of Economics, Sprint Investify, vol. 3(1), pages 63-76.
    2. Sergey Malakhov, 2014. "Satisficing Decision Procedure and Optimal Consumption-Leisure Choice," International Journal of Social Science Research, Macrothink Institute, vol. 2(2), pages 138-151, September.
    3. Sergey MALAKHOV, 2016. "Law of One Price and Optimal Consumption-Leisure Choice Under Price Dispersion," Expert Journal of Economics, Sprint Investify, vol. 4(1), pages 1-8.
    4. repec:eee:jbrese:v:82:y:2018:i:c:p:127-140 is not listed on IDEAS
    5. Sergey MALAKHOV, 2014. "Slutsky Equation and Negative Elasticity of Labor Supply: Behavioral Bias or Optimal Consumption-Leisure Choice?," Expert Journal of Economics, Sprint Investify, vol. 2(2), pages 80-84.

    More about this item

    Keywords

    sunk costs; consumption-leisure choice; search; satisficing; maximizing;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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