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Melioration: A Theory of Distributed Choice

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  • Richard J. Herrnstein
  • Drazen Prelec
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    Abstract

    In this paper, we develop a theory of individual choice called melioration, which implies that choices distributed over a period of time may be reliably and predictably suboptimal, in terms of the person's own preferences. Consider some typical examples of distributed choices: the expenditure rate on various non-durables; frequency of athletic exercise; rate of work in free-lance type occupations; allocation of leisure time; rate of savings (or dissavings); expenditures on lottery tickets, and other forms of gambling. When people express dissatisfaction about their choices, their discontent seems clustered around these sorts of distributed choices. For example, complaints that one is working too hard (or not hard enough), exercising too little (or too much), wasting time, overeating, overspending, and so on are commonplace. The next two sections of the paper spell out the basic theory we are proposing. The following section then applies the theory to "pathological" consumption patterns, and shows that one should find a general underinvestment in those activities that exhibit increasing average returns to rate of consumption, and an overinvestment in activities that have an addiction-like interaction between value and rate. The final section compares the theory with other approaches to suboptimal choice.

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    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/jep.5.3.137
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    Bibliographic Info

    Article provided by American Economic Association in its journal Journal of Economic Perspectives.

    Volume (Year): 5 (1991)
    Issue (Month): 3 (Summer)
    Pages: 137-156

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    Handle: RePEc:aea:jecper:v:5:y:1991:i:3:p:137-56

    Note: DOI: 10.1257/jep.5.3.137
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    1. H. M. Shefrin & Richard Thaler, 1977. "An Economic Theory of Self-Control," NBER Working Papers 0208, National Bureau of Economic Research, Inc.
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