Everything in Moderation: Foundations and Applications of the Satiation Model

Management Science, Forthcoming

32 Pages Posted: 17 Mar 2019 Last revised: 19 Nov 2019

See all articles by Manel Baucells

Manel Baucells

University of Virginia - Darden School of Business

Lin Zhao

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science; Chinese Academy of Sciences (CAS) - University of Chinese Academy of Sciences

Date Written: February 23, 2019

Abstract

Models where current utility depends solely on current consumption (a.k.a. time separable preferences) are widely acknowledged to be unrealistic, specially to describe preferences over consumption 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 explore how to optimally manage this motive.

Keywords: satiation, moderation, instant utility, design of experiential services

JEL Classification: D01

Suggested Citation

Baucells, Manel and Zhao, Lin, Everything in Moderation: Foundations and Applications of the Satiation Model (February 23, 2019). Management Science, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3340643 or http://dx.doi.org/10.2139/ssrn.3340643

Manel Baucells (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Lin Zhao

Chinese Academy of Sciences (CAS) - Academy of Mathematics and Systems Science ( email )

Zhongguancun East Road 55
Beijing, 100190
China

Chinese Academy of Sciences (CAS) - University of Chinese Academy of Sciences ( email )

Zhongguancun Road 80
Beijing, Beijing 100190
China

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