2014 Conference

Neoclassical utility models are built on the assumption of a concave utility function, where the marginal utility of consumption declines as wealth increases.  The source of utility under this model is derived from consumption.  This paper proposes an alternative view of utility.  Instead of deriving utility directly from consumption, this paper argues that utility is instead derived from consumer surplus.  Conversely, the concept of disutility can be modeled as being derived from consumer loss.  In other words, the source of utility is relative, and utility from consumption is found by making comparisons and exchanges.  This basic model is constructed using a single good and then extended to total household consumption.  The model is also applied to household supply and demand for funds, and implications for this model are discussed.