Abstract
We claim that preferences of economic agents cannot be assumed given; rather, they are partly determined by the process of trade in the market, by information about the latter and so forth. In other words, preferences determine actions which, in turn, determine preferences. Thus classical tools of analysis such as the neo-classical utility function and the demand curve should be viewed merely as first approximations, which are too simplistic for many purposes.
Changing preferences are not restricted to such phenomena as addiction, advertisement and so forth. Rather, for any product a satisficing consumer has an aspiration level, which is subject to change. The consumer’s preferences, as reflected in choice behavior, will also change once the aspiration level is adjusted.
We illustrate these claims by analyzing two examples concerning consumer reaction to price increases. We analyze the effect of aspiration level adjustments on the dynamic pattern of a single consumer’s demand, and show that such adjustments generate predictions which do not conform to the neo-classical theory.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Allais, M. (1947) Economie et Interet. Paris, Imprimerie Nationale
Bar-Ilan, A., Blinder, A.S. (1992) Consumer durables: Evidence on the optimality of usually doing nothing. Journal of Money, Credit and Banking 24: 258–272
Becker, G.S. (199la) Rational addiction and the effect of price on consumption. American Economic Review Papers and Proceedings 81(2): 237–241
Becker, G.S. (1991b) Habits, addiction and traditions. Nancy L. Schwartz Lecture, Northwestern University
Gilboa, I., Schmeidler, D. (1995) Case-based decision theory. The Quarterly Journal of Economics 110: 605–639
Gilboa, I., Schmeidler, D. (1996) Case-based optimization. Games and Economic Behavior 15: 1–26
Gilboa, I., Schmeidler, D. (1997) Cumulative utility consumer theory. International Economic Review 38: 737–761
Kahneman, D., Tversky, A. (1984) Choices, values and frames. American Psychologist 39: 341–350
Pollak, R.A. (1968) Consistent planning. Review of Economic Studies 35: 201–208
Pollak, R.A. (1970) Habit formation and dynamic demand functions. Journal of Political Economy 78: 745–764
Pollak, R.A. (1976) Habit formation and long-run utility functions. Journal of Economic Theory 13: 272–297
Strotz, R.H. (1956) Myopia and inconsistency in dynamic utility maximization. Review of Economic Studies 23: 165–180
Tversky, A., Kahneman, D. (1990) Reference theory of choice and exchange. Working paper
Author information
Authors and Affiliations
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2003 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Gilboa, I., Schmeidler, D. (2003). Reaction to price changes and aspiration level adjustments. In: Ichiishi, T., Marschak, T. (eds) Markets, Games, and Organizations. Studies in Economic Design. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-540-24784-5_6
Download citation
DOI: https://doi.org/10.1007/978-3-540-24784-5_6
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-53465-2
Online ISBN: 978-3-540-24784-5
eBook Packages: Springer Book Archive