Two-Stage Budgeting: A Difficult Problem

  • Authors:

  • A. Norman;J. Chou;M. Chowdhury;A. Dalal;K. Fortson;M. Jindal;K. Payne;M. Rajan

  • Affiliations:

  • Department of Economics, The University of Texas at Austin, Austin, TX 78712-1173, U.S.A.;Department of Economics, The University of Texas at Austin, Austin, TX 78712-1173, U.S.A.;Department of Economics, The University of Texas at Austin, Austin, TX 78712-1173, U.S.A.;Department of Economics, The University of Texas at Austin, Austin, TX 78712-1173, U.S.A.;Department of Economics, The University of Texas at Austin, Austin, TX 78712-1173, U.S.A.;Department of Economics, The University of Texas at Austin, Austin, TX 78712-1173, U.S.A.;Department of Economics, The University of Texas at Austin, Austin, TX 78712-1173, U.S.A.;Department of Economics, The University of Texas at Austin, Austin, TX 78712-1173, U.S.A.

  • Venue:
  • Computational Economics
  • Year:
  • 2001

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Abstract

Utility maximization with a weakly separable utility function requires aconsumer create an optimal budget for each separable subgroup. We show thatcomputational complexity of optimal budgeting is the maximum of an exponentialin the number of alternatives and a quadratic in the number of budgetincrements. From a budget survey of undergraduates we show that anundergraduate procedural consumer can obtain a budget estimate from theexperience of previous students and can monitor the flow of funds and can makeadjustments at a minuscule fraction of the calculations needed for optimalbudgeting.