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Foundations of Intrinsic Habit Formation

  • Kareen Rozen

We provide theoretical foundations for several common (nested) representations of intrinsic linear habit formation. Our axiomatization introduces an intertemporal theory of weaning a decision-maker from her habits using the device of compensation. We clarify differences across specifications of the model, provide measures of habit-forming tendencies, and suggest methods for axiomatizing time-nonseparable preferences. Copyright 2010 The Econometric Society.

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File URL: http://hdl.handle.net/10.3982/ECTA7302
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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 78 (2010)
Issue (Month): 4 (07)
Pages: 1341-1373

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Handle: RePEc:ecm:emetrp:v:78:y:2010:i:4:p:1341-1373
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  1. Sharon Kozicki & Peter A. Tinsley, 2001. "Dynamic specifications in optimizing trend-deviation macro models," Research Working Paper RWP 01-03, Federal Reserve Bank of Kansas City.
  2. Andrew B. Abel, 1990. "Asset Prices under Habit Formation and Catching up with the Joneses," NBER Working Papers 3279, National Bureau of Economic Research, Inc.
  3. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
  4. David Backus & Bryan Routledge & Stanley Zin, 2004. "Exotic Preferences for Macroeconomists," Working Papers 04-20, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. Iannaccone, Laurence R., 1986. "Addiction and satiation," Economics Letters, Elsevier, vol. 21(1), pages 95-99.
  6. William Neilson, 2006. "Axiomatic reference-dependence in behavior toward others and toward risk," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 28(3), pages 681-692, 08.
  7. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, Oxford University Press, vol. 106(4), pages 1039-1061.
  8. Xiaohong Chen & Sydney C. Ludvigson, 2004. "Land of Addicts? An Empirical Investigation of Habit-Based Asset Pricing Behavior," NBER Working Papers 10503, National Bureau of Economic Research, Inc.
  9. Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series 95-42, Board of Governors of the Federal Reserve System (U.S.).
  10. Botond Kőszegi & Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, Oxford University Press, vol. 121(4), pages 1133-1165.
  11. Shalev, Jonathan, 1997. "Loss aversion in a multi-period model," Mathematical Social Sciences, Elsevier, vol. 33(3), pages 203-226, June.
  12. Tjalling C. Koopmans, 1959. "Stationary Ordinal Utility and Impatience," Cowles Foundation Discussion Papers 81, Cowles Foundation for Research in Economics, Yale University.
  13. Wendner, Ronald, 2003. "Do habits raise consumption growth?," Research in Economics, Elsevier, vol. 57(2), pages 151-163, June.
  14. Michele Boldrin & Lawrence J. Christiano & Jonas D.M. Fisher, 1997. "Habit persistence and asset returns in an exchange economy," Working Paper Series, Macroeconomic Issues WP-97-04, Federal Reserve Bank of Chicago.
  15. Shi, Shouyong & Epstein, Larry G, 1993. "Habits and Time Preference," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 61-84, February.
  16. Uribe, Martin, 2002. "The price-consumption puzzle of currency pegs," Journal of Monetary Economics, Elsevier, vol. 49(3), pages 533-569, April.
  17. Ignacio Palacios-Huerta, 2001. "Multiple Addictions," Working Papers 2001-20, Brown University, Department of Economics.
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