Utility maximization problem: Difference between revisions

Revision as of 21:00, 14 May 2007

Revision as of 00:50, 28 May 2007

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In practice, a consumer may not always pick an optimal package. For example, it may require too much thought. [[Bounded rationality]] is a theory that explains this behaviour with [[satisficing]] - picking packages that are suboptimal but good enough.

To evaluate the utility of each bundle of goods requires time, knowledge, and attention. The number of bundle is extremely large (think toof a supermaketsupermarket) or even infinite. Thus, comparison in reality occurs only between a finite number of potential purchases (think to the process leading to choosing shoes). Neoclassical theory ignores these facts and uses high mathematics which is never used by real consumers.

Consumers, on the contrary, have developed skills, such as the capability of judging things, by parent's teaching, peer socialization, trial and error. They apply these skills, usually following simple rules of behaviours (e.g. buying a good that satisfy a need and whose price is below a certain maximum threshold).