Cumulative Utility Consumer Theory

This paper makes some preliminary steps towards a dynamic theory of consumer choices, restricted to the case of repeated small decisions. We assume that the consumer chooses among products, rather than among bundles, and that she bases her decision on a cumulative satisfaction index. Such a consumer is not necessarily "optimizing" and may be "satisficing" in the sense of Simon (1957). The aggregation of choices among products implicitly defines a choice of a bundle. If the aspiration level of the consumer is relatively low, she tends to be satisficed and to choose a corner point in the bundle space. If the aspiration level is relatively high, the consumer keeps switching among the products, and their relative frequencies converge to an interior point in the bundles space. Furthermore, the "utility" of a product is closely related to the relative frequency with which it is consumed. Thus this model offers a new definition of a product's "utility," as a cardinal measure of desirability. We also define the "potential" of the utility function, which is akin to the neoclassical utility function. Substitution and complementarity effects are related to the cross derivatives of the potential. We propose to incorporate a product's price directly into its utility. We study the relationship between the weight attached to prices in products evaluation and the budget constraint. Under certain conditions, the total expenditure is a decreasing function of this parameter and there exists a unique value for this parameter that balances the consumer's budget. Cumulative Utility Consumer Theory