Suppose a consumer buys a very expensive bottle of wine. He consumes the entire bottle in one evening. However, he had to put the expense on a credit card and knows he will be paying it off for the next 12 months. The following morning, the consumer evaluates his utility for the purchase and decides that $v\left(\Sigma_{t=0}^{12}(-p)\right)$ describes his value of the purchase (where $p$ is the payment he makes on the bottle of wine each month). Which type of behavior does this consumer necessarily exhibit?

Question

Quizplus · Accepted Answer

The consumer's behavior illustrates Payment Decoupling, where the pleasure derived from consumption (drinking the wine) is separated from the pain of paying for it (spreading the cost over 12 months).

Suppose a Consumer Buys a Very Expensive Bottle of Wine v(Σt=012(−p))v\left(\Sigma_{t=0}^{12}(-p)\right)v(Σt=012​(−p))

Suppose a Consumer Buys a Very Expensive Bottle of Wine $v\left(\Sigma_{t=0}^{12}(-p)\right)$