Thick Indifference Curves, Marketing and Behavioral Economics

David Gordon; Richard Vaughan

David Gordon Associate Professor and Chair - School of Business, University of Saint Francis College of Business and Health Administration 500 Wilcox St. Joliet, IL 60435, United States
Richard Vaughan Associate Professor, University of Saint Francis College of Business and Health Administration 500 Wilcox St. Joliet, IL 60435, United States

Keywords: Indifference curves, behavioral economics, marketing

Abstract

In this paper the differences between two schools of thought, the traditional school and the behavioral economics school, are discussed. The relatively new behavioral economics school is a blend of psychology and economics. The conventional assumptions concerning consumer preferences are explicated and elaborated upon. The assumptions include reflexivity, completeness, transitivity and continuity. Secondary assumptions, such as local nonsatiation and strict convexity, regarding preferences are also explained. Thick indifference curves in a two good world are explained and demonstrated to encompass rational behavior even though they do not reflect a well defined utility function. If a consumer has preferences that exhibit thick indifference curves behavioral economists can be mistaken in thinking that consumer behavior is irrational. The role that marketing plays in forming thick indifference curves is also established.

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