The complexity of the consumer problem and mental accounting

Research output: Working paper / PreprintDiscussion paper


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 NPHard, and it appears unlikely that it can be optimally solved by a human. A simple and intuitive heuristic suggests that the consumer adopt a top-down approach, dividing her budget among main categories, further dividing these amounts to sub-categories and so forth. Such a heuristic may give rise to phenomena of mental accounting.

Original languageEnglish
Place of PublicationTel Aviv
PublisherPinhas Sapir Center for Development, Tel Aviv University
Number of pages21
StatePublished - 2009

Publication series

NameDiscussion paper (The Pinhas Sapir center for development)
PublisherThe Pinhas Sapir center for development

ULI Keywords

  • uli
  • Consumer behavior -- Econometric models
  • Decision making -- Econometric models
  • Mental arithmetic
  • Arithmetic, Mental
  • Mental calculation


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