Brattle principal Dan McFadden has recently authored a working paper for the National Bureau of Economic Research (NBER), which examines new evidence on consumer behavior and what it implies for the measurement of consumer beliefs, intentions, preferences, choices, and well-being.
In his paper, “The New Science of Pleasure,” Professor McFadden explains how the neoclassical model of the individualistic utility-maximizing consumer that forms the basis of most economic analysis is being challenged by a “behavioral revaluation” suggesting new directions for the continuing development of choice theory. Professor McFadden’s paper surveys the history of the study of consumer behavior and well-being, and focuses on the perceptions, emotions, and behavior of individual consumers. Based on his examinations of consumers’ behavioral characteristics, Professor McFadden concludes that neither the physiology of pleasure nor the methods we use to make choices are as simple or as single-minded as previously thought, from an economic standpoint. Alternatively, much of consumers’ behavior is consistent with the pursuit of self-interest. Consumers typically rely on habits to inform their decision making, but in uncertain decision-making environments, Professor McFadden argues there is a good chance that habits will fail consumers.
To download the paper, please visit NBER’s website.View White Paper