Agent based modeling of consumer choice and aggregate demand: Maximizers vs satisficers

Abstract

In this paper we propose an agent-based model approach to determining the effects of consumer choice on aggregate demand (CCAD). Our overall goal is to better understand how the availability of information, heuristic decision making, and social norms affect: 1) total aggregate demand and 2) the aggregated demand for disposable vs. more durable goods. In the preliminary model presented here, consumer agents select among baskets of goods with different combinations of quality and disposability. Consumer choices are based on individual agent preferences and subject to a discretionary income constraint. Agents may be either maximizing, which means that they choose the best basket of goods that they can afford, or satisficing, which means that they choose the first affordable basket of goods that they can find with utility greater than their satisfaction threshold. When run at different price levels, the resulting models can be used to generate aggregated demand curves for each group of consumers. We also demonstrate that, satisficers buy more than maximizers overall. Further analysis shows that this is because maximizers focus their trading on more durable products to gain the highest utility, however satisficers purchase more disposable products because they shop for convenience rather than utility maximization.