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A Cue-Theory of Consumption

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  • David Laibson

Abstract

Psychological experiments demonstrate that repeated pairings of a cue and a consumption good eventually create cue-based complementarities: the presence of the cue raises the marginal utility derived from consumption. In this paper, such dynamic preferences are embedded in a rational choice model. Behavior that arises from this model is characterized by endogenous cue sensitivities, costly cue-management, commitment, and cue-based spikes in impatience. The model is used to understand addictive/habit-forming behaviors and marketing. The model explains why preferences change rapidly from moment to moment, why temptations should sometimes be avoided, and how firms package and position goods.

Suggested Citation

  • David Laibson, 2001. "A Cue-Theory of Consumption," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 81-119.
  • Handle: RePEc:oup:qjecon:v:116:y:2001:i:1:p:81-119.
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    File URL: http://hdl.handle.net/10.1162/003355301556356
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    References listed on IDEAS

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    1. Gary S. Becker & Kevin M. Murphy, 1993. "A Simple Theory of Advertising as a Good or Bad," The Quarterly Journal of Economics, Oxford University Press, vol. 108(4), pages 941-964.
    2. Feinberg, Richard A, 1986. "Credit Cards as Spending Facilitating Stimuli: A Conditioning Interpretation," Journal of Consumer Research, Oxford University Press, vol. 13(3), pages 348-356, December.
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