The Neuroeconomics of Habit

28 Pages Posted: 5 Mar 2021

See all articles by Colin Camerer

Colin Camerer

California Institute of Technology - Division of the Humanities and Social Sciences

Peter Landry

University of Toronto - Rotman School of Management

Ryan Webb

University of Toronto

Date Written: August 6, 2018

Abstract

We introduce a neureconomic "autopilot" model of habit, based on many studies of animal learning and human habituation. In this approach, there are two systems for valuation-- habit and goal-directed. The habitual system recalls the previous choice (which can be dependent on a contextual state), and the reliability of reward of that choice. (Reliability is the absolute value of reward prediction error, so a low value is associated with reliability.) If the reliability is below a threshold the habitual choice is made. Otherwise a goal directed utility-maximizing choice is made. A simple two-choice model is used to show how short-run own-price elasticities can be zero in this model while longer-run elasticities are negative. The theory is quite different than habit formation, as modelled by adjacent complementarity or reference-dependence in other economic theories. In the autopilot model, the structural driver of habit is reward reliability. When this number is persistent, choice is persistent. Persistent behavioral choice is therefore a byproduct of reward reliability and is not the correct preference specification.

Suggested Citation

Camerer, Colin F. and Landry, Peter and Webb, Ryan, The Neuroeconomics of Habit (August 6, 2018). Available at SSRN: https://ssrn.com/abstract=3752193 or http://dx.doi.org/10.2139/ssrn.3752193

Colin F. Camerer (Contact Author)

California Institute of Technology - Division of the Humanities and Social Sciences ( email )

1200 East California Blvd.
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Peter Landry

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Ryan Webb

University of Toronto ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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