We propose a new optimal consumption model in which the degree of addictiveness habit formation is directly controlled through constraint on admissible consumption. In particular, we assume that individual unwilling to consume at rate below certain proportion 0<α≤1 of her habit, exponentially-weighted average past rates. α=1 prohibits process decrease and corresponds completely addictive model....

Postulating that the brain performs approximate Bayesian inference generates principled and empirically testable models of neuronal function-the subject of much current interest in neuroscience and related disciplines. Current formulations address inference and learning under some assumed and particular model. In reality, organisms are often faced with an additional challenge-that of determinin...

The intuition for this equation is as follows. If λ, the parameter which controls how fast habits catch up with consumption, is equal to zero equation (6) reduces to the normal first order condition for the standard consumption optimization problem, which tells us that increasing consumption by today and reducing it by R in the next period must not change expected discounted utility. If λ is no...

This paper investigates the dynamic consumption and portfolio choice of an investor with habit formation in preferences and access to a complete financial market with time-varying investment opportunities. An exact and simple characterization of the optimal behavior under general, possibly non-Markov, dynamics of market prices is derived. Relative to the benchmark case of time-additive power ut...

Can compulsory voting induce lasting changes in citizens’ voting habits? We study the long-term and spillover effects of a severely sanctioned and long-standing compulsory voting law in the Swiss canton of Vaud (1900–1970). Our findings suggest that compulsory voting strongly increases turnout in federal referendums by about 30 percentage points. However, this effect returns to zero quickly aft...

To make good decisions, we evaluate past choices to guide later decisions. In most situations, we have the opportunity to simultaneously learn about both the consequences of our choice (i.e., operantly) and the stimuli associated with correct or incorrect choices (i.e., classically). Interestingly, in many species, including humans, these learning processes occasionally lead to irrational decis...

It has recently been shown that incorporating “keeping up with the Joneses”preferences into a prototypical two-ability-type optimal nonlinear income tax model leads to higher marginal tax rates for both types of agents. In particular, the high-skill type faces a positive marginal tax rate, rather than zero as in the conventional case. In this paper, agents’utility functions are postulated to ex...

W introduce a modification of the discounted utility model that accounts for both satiation and habit formation in intertemporal choice. Preferences depend on the satiation level and the habitual consumption level. These two state variables, together with the shape of the value function, drive the properties of the model. One unique feature of our model is that it addresses the trade-off betwee...