Consumer perceptions of commodity characteristics: Implications for choiceand well-being

Consumers base market choices on beliefs about the properties of commoditie s. Invoking Lancaster's characteristics approach, we explore the implicatio ns for consumer well-being of such beliefs being incorrect. Following an ex amination of the welfare cost of inaccurate beliefs, we address the questio n: do more accurate beliefs necessarily result in greater well-being? The i mpacts of changes in prices and income on well-being are then explored and some implications are drawn for the use of compensating variation. Finally, we contrast alternative perspectives on what constitutes the appropriate m easurement of welfare where consumers' beliefs about what they are actually consuming are mistaken.