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Satiation, habit formation, and other temporal anomalies: Extending the choice theory to multiple neighborhoods of time

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  • Fahmy, Hany

Abstract

The rational choice model under certainty and the discounted utility (DU) and expected utility (EU) models under uncertainty are criticized for their inability to capture many observed temporal behaviors, e.g., satiation, habit formation, and change-of-taste. By considering consumption as an activity, i.e., a combination of goods on the set of prospects X and consumption time on the time set T, this paper shows that the previous temporal anomalies are possible over the extended choice field X × T. In particular, the present framework demonstrates that the same decision maker could have different preference ordering in different psychological states. A key advantage of the present framework over some DU modifications that account for satiation and habit formation is that it is less ambiguous about the time attribute of the decision-making process.

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  • Fahmy, Hany, 2023. "Satiation, habit formation, and other temporal anomalies: Extending the choice theory to multiple neighborhoods of time," The Quarterly Review of Economics and Finance, Elsevier, vol. 89(C), pages 163-173.
    • Handle: RePEc:eee:quaeco:v:89:y:2023:i:c:p:163-173
    DOI: 10.1016/j.qref.2023.03.006
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