The complexity of the consumer problem

Itzhak Gilboa*, Andrew Postlewaite, David Schmeidler

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

A literal interpretation of neo-classical consumer theory suggests that the consumer solves a very complex problem. In the presence of indivisible goods, the consumer problem is NP-Hard, and it appears unlikely that it can be optimally solved by a human. Two implications of this observation are that (i) households may imitate each other's choices; (ii) households may adopt heuristics that give rise to the phenomenon of mental accounting.

Original languageEnglish
Pages (from-to)96-103
Number of pages8
JournalResearch in Economics
Volume75
Issue number1
DOIs
StatePublished - Mar 2021

Funding

FundersFunder number
National Science Foundation
Agence Nationale de la Recherche
Israel Science Foundation1077/17
Tel Aviv University
Higher Education Commission, Pakistan
Labex Ecodec11-LABX-0047

    Keywords

    • Computational complexity
    • Consumer theory
    • Mental accounting

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