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Modelling change in individual characteristics: an axiomatic framework

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  • Dietrich, Franz

    (METEOR)

Abstract

Economic models describe individuals in terms of underlying characteristics, such as taste for some good, sympathy level for another player, time discount rate, risk attitude, and so on. In real life, such characteristics change through experiences: taste for Mozart changes through listening to it, sympathy for another player through observing his moves, and so on. Models typically ignore change, not just for simplicity but also because it is unclear how to incorporate change. I introduce a general axiomatic framework for defining, analysing and comparing rival models of change. I show that seemingly basic postulates on modelling change together have strong implications, like irrelevance of the order in which someone has his experiences and `linearity'' of change. This is a step towards placing the modelling of change on solid axiomatic grounds and enabling non-arbitrary incorporation of change into economic models.

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Bibliographic Info

Paper provided by Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR) in its series Research Memorandum with number 045.

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Date of creation: 2008
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Handle: RePEc:unm:umamet:2008045

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Keywords: mathematical economics;

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  1. Hammond, Peter J, 1976. "Changing Tastes and Coherent Dynamic Choice," Review of Economic Studies, Wiley Blackwell, vol. 43(1), pages 159-73, February.
  2. Sethi, Rajiv & Somanathan, E., 2001. "Preference Evolution and Reciprocity," Journal of Economic Theory, Elsevier, vol. 97(2), pages 273-297, April.
  3. Samuel Bowles, 1998. "Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 75-111, March.
  4. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
  5. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
  6. Geanakoplos, John & Pearce, David & Stacchetti, Ennio, 1989. "Psychological games and sequential rationality," Games and Economic Behavior, Elsevier, vol. 1(1), pages 60-79, March.
  7. Armin Falk & Urs Fischbacher, . "A Theory of Reciprocity," IEW - Working Papers 006, Institute for Empirical Research in Economics - University of Zurich.
  8. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper 1998-37, Tilburg University, Center for Economic Research.
  9. Rajiv Sethi & E.Somanathan, 2002. "Understanding reciprocity," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers 02-05, Indian Statistical Institute, New Delhi, India.
  10. Fehr, Ernst & Gachter, Simon, 1998. "Reciprocity and economics: The economic implications of Homo Reciprocans1," European Economic Review, Elsevier, vol. 42(3-5), pages 845-859, May.
  11. Rabin, Matthew, 1997. "Psychology and Economics," Department of Economics, Working Paper Series qt8jd5z5j2, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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Cited by:
  1. Franz Dietrich & Christian List, 2011. "A model of non-informational preference change," Journal of Theoretical Politics, , vol. 23(2), pages 145-164, April.
  2. Franz Dietrich & Christian List, 2014. "Reason-Based Rationalization," STICERD - Theoretical Economics Paper Series /2014/565, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  3. Franz Dietrich & Christian List, 2013. "Reason-Based Rationalization," Levine's Working Paper Archive 786969000000000841, David K. Levine.

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