INVESTIGATIONS CONCERNING THE DYNAMICS OF CONSUMER BEHAVIOR IN UNCERTAIN ENVIRONMENTS

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Abstract
This paper reports the results of several experiments investigating dynamic consumer behavior. When consumers know their incomes and prices but are uncertain about their preferences, we find that they typically adopt a two‐step approach to locating optimal consumption bundles. Initially, a grid search method is employed; this is followed by a gradient search method. An interesting phenomenon observed in many of our experiments is a tendency to consume a bundle well away from the optimum, immediately after the optimum is located. The effects of income and price changes are also studied.

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