7.2.4—Limits of indifference curve model

The standard indifference-curve model assumes coherent preferences, complete information, divisible goods, a fixed income and prices, and curves that are ordered and usually convex.

Real choices may involve uncertainty, habits, status, discrete purchases, changing preferences, imperfect information or behavioural biases. Perfectly straight or kinked curves can represent special cases such as perfect substitutes or complements.

A commuter cannot buy 0.3 of a bus journey, and a loyalty habit may keep them with a familiar provider even after the relative price changes; the smooth-curve prediction is then only an approximation.

The model’s elegance is not evidence that people literally calculate utility; it is a conditional tool for analysing trade-offs.