A Model of Bounded Rational Consumers with Endogenous Preferences

This paper intends to be a contribution towards an evolutionary theory of consumer. Standard economic theory assumes perfectly rational agents acting upon exogenously given preferences. Here it is proposed a bounded rational representation of consumers, which seems even more justified for consumers than for producers since they are not subject to competitive pressures and there cannot exist any “punishment” for inefficient consumers. The proposed representation acknowledges that the context in which consumers make their decisions is largely influenced by firms with their marketing activities, so that competing firms contribute to shaping their own selection mechanism, hence causing the (partially) endogenous character of preferences. The consumer representation discussed, founded on cognitive theory and available evidence, is implemented in a simulation model which is tested with exercises meant to investigate the properties of a demand formed by such consumers. The results show that the such a demand respects the basic requirements, for example recognizing dominating products when they exist. Moreover, the model proposed is able to investigate the properties of markets for heterogeneous products, suggesting different categories and properties of endogenous market segmentation.