Journal Of The Econometric Society

An International Society for the Advancement of Economic
Theory in its Relation to Statistics and Mathematics

Edited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262

Econometrica: Jul, 2010, Volume 78, Issue 4

Foundations of Intrinsic Habit Formation
p. 1341-1373

Kareen Rozen

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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Supplemental Material

Supplement to "Foundations of Intrinsic Habit Formation"

This supplement contains additional results that combine with Lemmas 1-22 in Appendix A to prove Theorem 2, giving monotonicity properties of the period utility under Axiom GM.