The Value Priority Hypotheses for Consumer Budget Plans

Based on the behavioral sciences and mathematical programming, we hypothesize that consumers rank durables by a value (or net value) priority approximated by utility per dollar (or utility minus price) and plan to choose items in that order up to a budget cutoff. This paper derives these hypotheses and develops a convergent linear programming procedure to estimate utility. Using primary field data on reservation prices, purchase probabilities, lottery orders, and combination prizes, we estimate utilities and compare the hypotheses to 215 actual budget plans. LISREL V analysis provides further support for the hypotheses.

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