The economic theory of the consumer is a combination of positive and normative theories. Since
it is based on a rational maximizing model it describes how consumers should choose, but it is
alleged to also describe how they do choose. This paper argues that in certain well-defined
situations many consumers act in a manner that is inconsistent with economic theory. In these
situations economic theory will make systematic errors in predicting behavior. Kahneman and
Tversky's prospect theory is proposed as the basis for an alternative descriptive theory. Topics
discussed are: underweighting of opportunity costs, failure to ignore sunk costs, search behavior,
choosing not to choose and regret, and precommitment and self-control.