Memorable consumption

Itzhak Gilboa, Andrew Postlewaite and Larry Samuelson

Journal of Economic Theory, 2016, vol. 165, issue C, 414-455

Abstract: People often consume non-durable goods in a way that seems inconsistent with preferences for smoothing consumption over time. We suggest that such patterns of consumption can be better explained if one takes into account the future utility flows generated by memorable consumption goods—goods, such as a honeymoon or a vacation, whose utility flow outlives their physical consumption. We consider a model in which a consumer enjoys current consumption as well as utility generated by earlier memorable consumption. Lasting utility flows are generated only by some goods, and only when their consumption exceeds customary levels by a sufficient margin. We offer axiomatic foundations for the structure of the utility function and study optimal consumption in a dynamic model. We show that rational consumers, taking into account future utility flows, would make optimal choices that rationalize lumpy patterns of consumption.

Keywords: Memorable goods; Consumption volatility; Consumption smoothing (search for similar items in EconPapers)
JEL-codes: D11 D14 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:165:y:2016:i:c:p:414-455

DOI: 10.1016/j.jet.2016.05.004

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