Notice of the Academic Forum of the Young Scholars at Home and Abroad for Jilin University Quantitative Economics

Notice of the Academic Forum of the Young Scholars at Home and Abroad for Jilin University Quantitative Economics


Published:2019-09-03 20:46:57 Author:

Models where current utility depends solely on current consumption (a.k.a. time separable preferen-ces) are widely acknowledged to be unrealistic, specially to describe preferences over consumptio-n rates.   Alternatively, one may stipulate that instant utility also depends on a state, e.g., some stock of past       consumption.Escaping the gravitational pull of time separability, however, is difficult because i) the     behavioral axioms that characterize the state and the instant utility are not known, ii) how to elicit the  preference parameters—most notably the initial level of the state and the decay rate—is not known, and iii) managerial applications where state-dependent preferences produce interesting insights and solutions are scarce. This paper advances on these three fronts by proposing a novel set of axioms that characterize the satiation model, a proof of concept on how to elicit all preference parameters using consumption rates, and a mixed integer linear formulation to solve the optimal design of experiential services under  satiation. Our preferences introduce a de-satiation motive, absent in separable preferences, and we show how to optimally manage this motive.

 

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