糖心TV

Robert Sugden (UEA)

A simple model of rank-based decision-making by consumers

This is a sketch of a model of a market in which most but not all consumers use a rank-based decision rule to choose between products. Products in the market are distinguished by price (which is observable) and quality (which is not). The novel feature (which differentiates us from Prelec et al., 1997) is that consumers observe the market share of each product. We explain why this assumption is plausible. Each rankchoosing consumer has a ‘preferred’ rank by price (e.g. prefers to buy at the 25th percentile of price). Some proportion of consumers act on neoclassical preferences. Under certain assumptions, the model has a unique equilibrium in which *all* consumers act as if they had neoclassical preferences. Thus, all results in the standard theory of oligopoly still apply. On one interpretation, rank-choosing is an efficient heuristic for satisfying ‘true’ preferences when information is limited. On another, it shows how regularities in behaviour at the market level can be induced even if individuals do not have well-articulated preferences.