Reaction to Price Changes and Aspiration Level Adjustments
AbstractWe claim that preferences of economic agents cannot be assumed given; rather, they are partly determined by the process of trade in the market, by information about the latter and so forth. In other words, preferences determine actions which, in turn, determine preferences. Thus classical tools of analysis such as the neo-classical utility function and the demand curve should be viewed merely as first approximations, which are too simplistic for many purposes. Changing preferences are not restricted to such phenomena as addiction, advertisement and so forth. Rather, for any product a satisficing consumer has an aspiration level, which is subject to change. The consumer's preferences, as reflected in choice behavior, will also change once the aspiration level is adjusted. We illustrate these claims by analyzing two example concerning consumer reaction to price increases. We analyze the effect of aspiration level adjustments on the dynamic pattern of a single consumer's demand, and show that such adjustments generate predictions which do not conform to the neo-classical theory.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1110.
Date of creation: Jun 1994
Date of revision:
Contact details of provider:
Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Web page: http://www.kellogg.northwestern.edu/research/math/
More information through EDIRC
Other versions of this item:
- David Schmeidler & Itzhak Gilboa, 1994. "Reaction to Price Changes and Aspiration Level Adjustments," Working Papers 023, Ohio State University, Department of Economics.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Pollak, Robert A, 1970. "Habit Formation and Dynamic Demand Functions," Journal of Political Economy, University of Chicago Press, vol. 78(4), pages 745-63, Part I Ju.
- Itzhak Gilboa & David Schmeidler, 1993. "Case-Based Consumer Theory," Discussion Papers 1025, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Becker, Gary S, 1992.
"Habits, Addictions, and Traditions,"
Wiley Blackwell, vol. 45(3), pages 327-45.
- Becker, G.S., 1991. "Habits, Addictions, and Traditions," University of Chicago - Economics Research Center 91-8, Chicago - Economics Research Center.
- Gary S. Becker, 1991. "Habits, Addictions, and Traditions," University of Chicago - George G. Stigler Center for Study of Economy and State 71, Chicago - Center for Study of Economy and State.
- Bar-Ilan, Avner & Blinder, Alan S, 1992. "Consumer Durables: Evidence on the Optimality of Usually Doing Nothing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(2), pages 258-72, May.
- Gary S.Grossman Becker & Michael Murphy & Kevin M., 1991.
"Rational Addiction and the Effect of Price on Consumption,"
University of Chicago - George G. Stigler Center for Study of Economy and State
68, Chicago - Center for Study of Economy and State.
- Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1991. "Rational Addiction and the Effect of Price on Consumption," American Economic Review, American Economic Association, vol. 81(2), pages 237-41, May.
- Itzhak Gilboa & David Schmeidler, 1993.
1039, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Pollak, Robert A., 1976. "Habit formation and long-run utility functions," Journal of Economic Theory, Elsevier, vol. 13(2), pages 272-297, October.
- Sadiraj, V. & Tuinstra, J. & Winden, F. van, 2004. "Interest Group Size Dynamics and Policymaking (extensive revised version of WP 01-03)," CeNDEF Working Papers 04-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Lones Smith & Ennio Stacchetti, 2002. "Aspirational Bargaining," Game Theory and Information 0201003, EconWPA.
- Philippe Jehiel & Oliver Compte, 2007. "Bargaining with Reference Dependent Preferences," Levine's Bibliography 122247000000001552, UCLA Department of Economics.
- Guerdjikova, Ani, 2006. "Portfolio Choice and Asset Prices in an Economy Populated by Case-Based Decision Makers," Working Papers 06-13, Cornell University, Center for Analytic Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fran Walker).
If references are entirely missing, you can add them using this form.