Consumption with fluctuations in preference

K  Nakazawa; J D  Hey

Consumption with fluctuations in preference

K Nakazawa, J D Hey

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

This paper presents an infinite-horizon model of consumer behavior with flexible preference over durable goods to show that frequency of demand switching is not constant even if the flexibility of preference is constant. The main result of this model is that more frequent demand fluctuations are brought about by increase in wealth or income. Our model uses the stochastic dynamic programming method combined with expected utility theory. It is also shown, however, that qualitatively similar results can be obtained even when the assumption of extremely rational behavior is dropped.

Original language	English
Pages (from-to)	173-192
Number of pages	20
Journal	ECONOMIC AND ENVIRONMENTAL RISK AND UNCERTAINTY
Volume	35
Publication status	Published - 1997

Cite this

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title = "Consumption with fluctuations in preference",

abstract = "This paper presents an infinite-horizon model of consumer behavior with flexible preference over durable goods to show that frequency of demand switching is not constant even if the flexibility of preference is constant. The main result of this model is that more frequent demand fluctuations are brought about by increase in wealth or income. Our model uses the stochastic dynamic programming method combined with expected utility theory. It is also shown, however, that qualitatively similar results can be obtained even when the assumption of extremely rational behavior is dropped.",

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AU - Nakazawa, K

AU - Hey, J D

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AB - This paper presents an infinite-horizon model of consumer behavior with flexible preference over durable goods to show that frequency of demand switching is not constant even if the flexibility of preference is constant. The main result of this model is that more frequent demand fluctuations are brought about by increase in wealth or income. Our model uses the stochastic dynamic programming method combined with expected utility theory. It is also shown, however, that qualitatively similar results can be obtained even when the assumption of extremely rational behavior is dropped.

M3 - Article

VL - 35

SP - 173

EP - 192

JO - ECONOMIC AND ENVIRONMENTAL RISK AND UNCERTAINTY

JF - ECONOMIC AND ENVIRONMENTAL RISK AND UNCERTAINTY

ER -