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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Intertemporal Choice under Habit Formation
Organization Unit
Authors
  • Ernst Fehr
  • Peter K Zych
Language
  • English
Institution University of Zurich
Series Name Working paper series / Institute for Empirical Research in Economics
Number No. 43
ISSN 1424-0459
Date 2000
Abstract Text Many of the most important choices in people's lives have an inter-temporal dimension, i.e., these choices are associated with a flow of benefits or costs that accrue in the future. In addition, such choices are frequently habit- forming. Yet, little is known about habit-forming inter-temporal choice behavior. This paper reports the results of an inter-temporal choice experiment with habit-formation. Subjects' choices deviate systematically from individually optimal decisions in the direction of over consumption. This over- consumption is partly driven by loss avoidance, comparable to a real life situation in which addicted people consume addictive substances only in order to overpower withdrawal symptoms. Our results thus reject the theory of rational addiction.
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