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Optimal consumption sequences under habit formation and satiation

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  • Dubra, Juan
  • Egozcue, Martín
  • García, Luis Fuentes

Abstract

In this note, we contribute to the literature of behavioral economics by extending a result in Baucells and Sarin (2010). We find the optimal consumption sequence for many goods and many periods in an intertemporal choice framework where preferences can exhibit at the same time habit formation and satiation. For the case in which habit formation matters more than satiation, we find that if consumers must consume a good in every period, for certain types of S-shaped value function, consuming the same good in all the periods is optimal. However, if consumers can choose not to consume in some periods, then this behavior is optimal only for certain kind of piece-wise linear value functions. We also discuss briefly the case when satiation dominates habituation.

Suggested Citation

  • Dubra, Juan & Egozcue, Martín & García, Luis Fuentes, 2019. "Optimal consumption sequences under habit formation and satiation," Journal of Mathematical Economics, Elsevier, vol. 80(C), pages 70-76.
    • Handle: RePEc:eee:mateco:v:80:y:2019:i:c:p:70-76
    DOI: 10.1016/j.jmateco.2018.11.004
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    References listed on IDEAS

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    1. Manel Baucells & Rakesh K. Sarin, 2010. "Predicting Utility Under Satiation and Habit Formation," Management Science, INFORMS, vol. 56(2), pages 286-301, February.
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    5. Sims, Christopher A., 2003. "Implications of rational inattention," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 665-690, April.
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    8. McAlister, Leigh, 1982. "A Dynamic Attribute Satiation Model of Variety-Seeking Behavior," Journal of Consumer Research, Journal of Consumer Research Inc., vol. 9(2), pages 141-150, September.
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    10. Jeffrey C. Fuhrer, 2000. "Habit Formation in Consumption and Its Implications for Monetary-Policy Models," American Economic Review, American Economic Association, vol. 90(3), pages 367-390, June.
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    Cited by:

    1. Yan, Zhen & Han, Fei & Wang, Holly & Shen, Yun & Zhou, Jiehong, 2024. "Purchasing habits, age effects and Chinese consumers' willingness to pay for chilled pork: Evidence from a random Nth-price auction experiment," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 68(02), January.
    2. Martín Egozcue & Luis Fuentes García, 2024. "Optimizing hedonic editing for multiple outcomes: an algorithm," Computational Management Science, Springer, vol. 21(2), pages 1-25, December.

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