Satiation-Based Theory of Frugal Materialism

Frugal materialism is a tendency of consumer demand to become more elastic in product durability in response to a tightening budget constraint. This paper proposes a value function-based model of frugal materialism and establishes a close theoretical link between frugal materialism and the slope of value satiation as defined in the decision analytic literature; for both their absolute and relative versions, frugal materialism and increasing value satiation are nearly equivalent to each other. Only some shapes of the value function are thus compatible with frugal materialism, and the shape restrictions involve concepts familiar from models of decision making under risk, even though the proposed model of frugal materialism does not involve any risk. Under the additional assumption of relative risk neutrality, the demand for risky assets of a frugally materialistic consumer should exhibit well-known behavioral patterns associated with increasing risk aversion, and there is only a narrow possibility for frugal materialism to coexist with precautionary saving behavior.