Memorable Consumption

TitleMemorable Consumption
Publication TypeJournal Article
Year of Publication2016
AuthorsPostlewaite, Andrew, Itzhak Gilboa, and Larry Samuelson
JournalJournal of Economic Theory
Volume165
Pagination414-455
ISBN Number0022-0531
AbstractPeople 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.
URLhttp://dx.doi.org/10.1016/j.jet.2016.05.004