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Randomly Evolving Tastes and Delayed Commitment

39 Pages Posted: 11 Jun 2016  

R. Vijay Krishna

Florida State University - Department of Economics

Philipp Sadowski

Duke University - Department of Economics

Date Written: June 9, 2016

Abstract

We consider a decision maker with randomly evolving tastes who faces dynamic decision situations that involve intertemporal tradeoffs, such as those in consumption savings problems. We axiomatize a recursive representation of choice that features uncertain consumption utilities, which evolve according to a subjective Markov process. The parameters of the representation, which are the subjective Markov process governing the evolution of utilities, and the discount factor, are uniquely identified from behavior. We relate the correlation of tastes over time and the desire to delay commitment to future consumption.

Suggested Citation

Krishna, R. Vijay and Sadowski, Philipp, Randomly Evolving Tastes and Delayed Commitment (June 9, 2016). Economic Research Initiatives at Duke (ERID) Working Paper No. 218. Available at SSRN: https://ssrn.com/abstract=2793446 or http://dx.doi.org/10.2139/ssrn.2793446

R. Vijay Krishna

Florida State University - Department of Economics ( email )

Tallahassee, FL 30306-2180
United States

Philipp Sadowski (Contact Author)

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States
919-660-1800 (Phone)

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