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Consumer Habituation

  • Luc Wathieu

    ()

    (Harvard Business School, Morgan Hall, Soldiers Field, Boston, Massachusetts 02163.)

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    This paper examines how consumers' willingness to pay for goods is determined by past patterns of consumption. The central result is a theorem of interior maximum, which states that willingness to pay for a good is maximized at a moderate level of habitual consumption. The theorem is derived from a simple model of adaptive behavior that involves a shifting S-shaped value function. The detailed analysis of the impact of consumption frequency and intensity on willingness to pay reveals an unsuspected implication of diminishing sensitivity, even as it leads to a formalization of consumer habituation patterns (including sensitization, habituation, and response recovery upon withdrawal) that matches and integrates the most robust empirical regularities attendant on nonassociative learning in neurobiology and behavioral psychology. An examination of the implications for demand dynamics and pricing highlights deterministic recurrent and transient patterns of consumption at higher price points.

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    File URL: http://dx.doi.org/10.1287/mnsc.1030.0185
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    Article provided by INFORMS in its journal Management Science.

    Volume (Year): 50 (2004)
    Issue (Month): 5 (May)
    Pages: 587-596

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    Handle: RePEc:inm:ormnsc:v:50:y:2004:i:5:p:587-596
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    1. George Loewenstein, Ted O'Donoghue and Matthew Rabin., 2000. "Projection Bias in Predicting Future Utility," Economics Working Papers E00-284, University of California at Berkeley.
    2. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    3. Pradeep K. Chintagunta, 1999. "Variety Seeking, Purchase Timing, and the "Lightning Bolt" Brand Choice Model," Management Science, INFORMS, vol. 45(4), pages 486-498, April.
    4. Fournier, Susan, 1998. " Consumers and Their Brands: Developing Relationship Theory in Consumer Research," Journal of Consumer Research, Oxford University Press, vol. 24(4), pages 343-73, March.
    5. T. Borgers & R. Sarin, 2010. "Naïve Reinforcement Learning With Endogenous Aspirations," Levine's Working Paper Archive 381, David K. Levine.
    6. Loewenstein, George & Adler, Daniel, 1995. "A Bias in the Prediction of Tastes," Economic Journal, Royal Economic Society, vol. 105(431), pages 929-37, July.
    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. 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.
    9. Luc Wathieu, 1997. "Habits and the Anomalies in Intertemporal Choice," Management Science, INFORMS, vol. 43(11), pages 1552-1563, November.
    10. 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.
    11. Laibson, David I., 2000. "A Cue-Theory of Consumption," Scholarly Articles 4481496, Harvard University Department of Economics.
    12. Ratner, Rebecca K & Kahn, Barbara E & Kahneman, Daniel, 1999. " Choosing Less-Preferred Experiences for the Sake of Variety," Journal of Consumer Research, Oxford University Press, vol. 26(1), pages 1-15, June.
    13. David Bowman & Deborah Minehart & Matthew Rabin, 1994. "Loss aversion in a consumption/savings model," International Finance Discussion Papers 492, Board of Governors of the Federal Reserve System (U.S.).
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