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On the Axiomatization of the Satiation and Habit Formation Utility Models

Author

Listed:
  • Ying He

    () (Department of Management Sciences, City University of Hong Kong, Kowloon, Hong Kong, China)

  • James S. Dyer

    () (Department of Information, Risk, and Operations Management, McCombs School of Business, The University of Texas at Austin, Austin, Texas 78712)

  • John C. Butler

    () (Department of Finance, McCombs School of Business, The University of Texas at Austin, Austin, Texas 78712)

Abstract

We propose a preference condition called shifted difference independence to axiomatize a general habit formation and satiation model (GHS). This model allows for a general habit formation and satiation function that contain many functional forms in the literature as special cases. Since the GHS model can be reduced to either a general satiation model (GSa) or a general habit formation model (GHa), our theory also provides approaches to axiomatize both the GSa model and the GHa model. Furthermore, by adding extra preference conditions into our axiomatization framework, we obtain a GHS model with a linear habit formation function and a recursively defined linear satiation function.

Suggested Citation

  • Ying He & James S. Dyer & John C. Butler, 2013. "On the Axiomatization of the Satiation and Habit Formation Utility Models," Operations Research, INFORMS, vol. 61(6), pages 1399-1410, December.
  • Handle: RePEc:inm:oropre:v:61:y:2013:i:6:p:1399-1410
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    File URL: http://dx.doi.org/10.1287/opre.2013.1223
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    References listed on IDEAS

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    1. repec:eee:eecrev:v:95:y:2017:i:c:p:142-167 is not listed on IDEAS
    2. Havranek, Tomas & Rusnak, Marek & Sokolova, Anna, 2017. "Habit formation in consumption: A meta-analysis," European Economic Review, Elsevier, vol. 95(C), pages 142-167.
    3. Manel Baucells & Rakesh K. Sarin, 2013. "Determinants of Experienced Utility: Laws and Implications," Decision Analysis, INFORMS, vol. 10(2), pages 135-151, June.

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