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A Cue-Theory of Consumption

  • Laibson, David I.

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.

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File URL: http://dash.harvard.edu/bitstream/handle/1/4481496/Laibson_Cue-Theory.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4481496.

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Date of creation: 2000
Date of revision:
Publication status: Published in Quarterly Journal of Economics -Cambridge Massachusetts-
Handle: RePEc:hrv:faseco:4481496
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