This paper takes a novel approach to thinking about and solving consumer decision problems. It uses product-unit specifications of willingness to pay as the basis for step-by-step maximization of consumer surplus subject to an appropriate budget constraint. If these specifications are given by an economically valid system of inverse demands, the resulting quantity-bundle solution is shown to be the same as that of the standard utility maximization approach up to any fractional units. Suitable alternative willingness-to-pay specifications are shown to be derivable from choice models that incorporate relevant psychological phenomena. Important impacts on consumer surplus analysis are shown as well.
Key Words: behavioural consumer choice; consumer surplus; context-dependent preferences; mental accounting; project evaluation; willingness to pay.
JEL Classification Numbers: C61, D03, D11, D61, H43.