Mathematical Approach to Understanding Consumer Behavior

Mathematical Approach to Understanding Consumer Behavior

This study examines the theory of consumer behavior, particularly the use of optimization within utility maximization. The science of economics deals with the behavior of economic agents: consumers, producers, and the government. Every consumer is assumed to allocate his or her income to different goods and services that he or she buys, so that the objective is optimized. Similarly, every business firm is assumed to allocate its resources so that its profits are optimized. Government agents are also assumed to allocate resources so that society’s benefits or welfare will be optimized. The resources necessary to satisfy unlimited human wants are scarce, necessitating a choice. Every agent is assumed to be rational, attempting to allocate scarce resources in such a way that the agent’s objective is optimized. Therefore, optimal allocation of resources lies at the heart of the science of economics. Many relevant studies describe how mathematics can be used by various scientific disciplines, business, and economics to solve quantitative problems, more specifically the optimum problem. Additionally examined is the history of various mathematical approaches to analyzing consumer behavior, ranging from the Austrian marginal utility theory to present-day challenges within behavioral economics.