Sunk costs of consumer search: economic rationality of satisficing decision

Malakhov, Sergey (2014): Sunk costs of consumer search: economic rationality of satisficing decision.

Abstract

The paper argues that sunk costs’ sensitivity can lead to the optimal consumption-leisure choice under price dispersion. The increase in quantity to be purchased with the extension of the time horizon of the consumption-leisure choice equalizes marginal costs of search with its marginal benefits. The implicit optimal choice results in the explicit satisficing decision. The transformation of cognitive mechanism of discouragement into satisficing happens only in the “common model” of consumer behavior. The paper argues that the cognitive mechanism of aspiration takes place when consumers try to get marginal savings on purchase greater than the wage rate and, therefore, they follow the “leisure model” of behavior where both the marginal utility of labor income and the marginal utility of consumption become negative.

• Item Type: MPRA Paper
• Language: English
• Keywords: sunk costs, consumption-leisure choice, search, satisficing, maximizing
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness

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