Managerial Economics

Is the Theory of the Consumer Realistic?

Strictly speaking, it would be difficult to make a case that the theory of the consumer conforms to our own experience of consumption decisions or what we observe of other consumers. We don’t consciously weigh the relative marginal utilities of tens of thousands of possible goods and services we might consume. We don’t know all the current prices and don’t even know of the existence of many goods and services. Even if we did, the computational complexity to solve for optimal consumption would overwhelm our faculties, and probably even the fastest computers available.

Many times we and others don’t think of our consumption in terms of what gives us the greatest satisfaction but in terms of what it takes ...