Title

Foundations of Intrinsic Habit Formation

Authors

Kareen Rozen

Document Type

Discussion Paper

Publication Date

3-1-2008

CFDP Number

1642R

CFDP Revision Date

2009-03-01

CFDP Pages

39

Abstract

We provide theoretical foundations for several common (nested) representations of intrinsic linear habit formation. Our axiomatization introduces an intertemporal theory of weaning a decision-maker from her habits using the device of compensation. We clarify differences across specifications of the model, provide measures of habit-forming tendencies, and suggest methods for axiomatizing time-nonseparable preferences.

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