Purchase Decisions Made prior to the Revelation of Price: Simple Analytics of the Consumer's Problem

• Published in: Southern economic journal Vol. 60; no. 4; pp. 1055 - 1059
• Main Authors: Beard, T. Randolph, Sweeney, George H.
• Format: Journal Article
• Language: English
• Published: Chapel Hill, N.C., etc Southern Economic Association and the University of North Carolina at Chapel Hill 01.04.1994; Southern Economic Association and the University of North Carolina; Southern Economic Association
• Subjects: Communications; Consumer behavior; Consumer choice; Consumer prices; Consumers; Consumption; Economic models; Economic theory; Economic uncertainty; Electricity; Expected utility; Goods; Marginal rate of substitution; Optimal consumption; Price level; Prices; Purchasing power; Risk aversion; Studies; Uncertainty
• ISSN: 0038-4038; 2325-8012
• DOI: 10.2307/1060442

The analysis of consumption decisions made under the time of sale price uncertainty is initiated. Although this problem is related to issues arising in the analysis of dynamic consumption/investment models, this focus has largely escaped notice. First, an informal and strongly intuitive approach to derive an approximate condition characterizing the consumer's optimal consumption plan which illustrates the intertwined roles of risk aversion (in the Arrow-Pratt sense), preferences for goods, and price risk in determining consumer behavior. Second, it is noted that the potential import of the conclusions for demand estimation in circumstances likely to be characterized by uncertain or suitable complex price systems.