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The Shape of Temptation: Implications for the Economic Lives of the Poor

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  • Abhijit Banerjee
  • Sendhil Mullainathan

Abstract

This paper argues that the relation between temptations and the level of consumption plays a key role in explaining the observed behaviors of the poor. Temptation goods are defined to be the set of goods that gen- erate positive utility for the self that consumes them, but not for any previous self that anticipates that they will be consumed in the future.

Suggested Citation

  • Abhijit Banerjee & Sendhil Mullainathan, 2010. "The Shape of Temptation: Implications for the Economic Lives of the Poor," Working Papers id:2484, eSocialSciences.
    • Handle: RePEc:ess:wpaper:id:2484
    Note: Institutional Papers
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    More about this item

    Keywords

    consumption; poor; temptation goods; interest rates; investment; savings; borrowing; risk-behavior; Euler inequality;
    All these keywords.

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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