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THIS PAPER PRESENTS A UNIFIED MODEL OF CONSUMER SEARCH WHEN BOTH PRICE AND QUALITY ARE UNCERTAIN. IT IS ASSUMED THAT PRICE CAN BE OBSERVED BEFORE PURCHASE, BUT QUALITY ONLY AFTER PURCHASE AND EXPERIENCE. THIS TWO-STAGE DECISION IS OF INTEREST SINCE THERE IS USUALLY A CONNECTION BETWEEN QUALITY AND PRICE. ONE IMPLICATE EXPLORED IS THAT THE "RESERVATION-PRICE" RULE MAY NO LONGER BE OPTIMAL.

It is to demonstrate the enormous potential of the experimental method in economics by providing examples of how experimental economics can shed important new light on key issues of vital economic significance. The subject matter covers several areas of economics and demonstrates why and how experimental methodology can provide new insight. It should prove invaluable to all economists, but perhaps particularly those who are as yet unexposed to this particular methodology. The most active experimental economists contributed to this volume: Besides the editor of this volume there are to mention P. Bohm, P. Burrows and G. Loomes, G.W. Harrison, S.S. Lim, E.C. Prescott and S. Sunder, A.E. Roth, P. Sbriglia

Introduction: Recent Developments in Microeconomics; J.D.Hey -- Choice under Uncertainty: Problems Solved and Unsolved; M.J.Machina -- Uncertainty, Information and Insurance; R.Rees -- Game Theory, Oligopoly and Bargaining; B.Lyons & Y.Varoufakis -- Contract Theory and Incentive Compatibility; M.Coles & J.M.Malcomson -- Experimental Economics; G.Loomes -- General Equilibrium and Disequilibrium and the Microeconomic Foundations of Macroeconomics; P.Madden -- Microeconomic Modelling and Microeconomic Policy Analysis; I.Walker -- What's the Good of Equality?; J.Broome -- Institutional Economics; R.A.Solo.

AbstractThis paper makes a modest contribution to investigating whether people, when tackling dynamic decision problems, formulate plans and then implement them. Assumed behaviour of this form is central to many theories of economic decision‐making, yet much direct empirical evidence (from economists and particularly from psychologists) suggests that it has rather dubious empirical support. The paper begins by discussing the importance and centrality of planning to economic theories of dynamic decision‐making, and then examines the difficulty of empirically investigating whether planning occurs. It then describes a simple experiment that sheds some light on this phenomenon. The findings from the experiment, although only directly relevant to the context of the experiment, do suggest that people do (want to) plan when the circumstances are appropriate. The paper concludes by discussing alternative designs.

This article brings together and extends several strands of literature concerning the behaviour of the competitive firm operating under (spot) price uncertainty. Specifically, the article analyses a dynamic model in which the firm can hold inventories and can sell in the forward market (at a certain price). It shows that both the existence of inventories and the existence of a forward market encourages the firm to increase its output. Comparative static propositions are derived, and the results related to previous findings in the earlier literature.

ABSTRACTIn econometric investigations of consumption, the econometrician may either estimate the structural relationship or investigate the implication (revealed by Hall) that the marginal utility of consumption follows a random walk. Researchers have been inhibited from following the former route by the lack of an explicit theoretical relationship. This paper removes this inhibition by deriving the optimal consumption strategy of an individual with constant absolute risk‐aversion, whose income is generated by an nth order normal autoregressive process. We show that the implied structural relationship is linear in wealth and lagged income terms (up to the nth order). This facilitates informative and efficient econometric exploration of the consumption function.