Satiation in Discounted Utility

In this paper, we propose a model of intertemporal choice that explicitly incorporates satiation due to previous consumption in the evaluation of the utility of current consumption. In the Discounted Utility model, the utility of consumption is evaluated afresh in each time period. In our model, the utility of current consumption represents an incremental utility from the past level. When the time interval between consumption periods is large, and there are, therefore, no carryover effects, our model coincides with the Discounted Utility model. For short time intervals between consumption periods, the satiation due to previous consumption lowers the utility of current consumption. Several implications of our model are examined and comparisons with the Discounted Utility model and the Reference-Point model are made.

• Type: Journal
• Year: 2007
• Where: IOR
• Authors: Manel Baucells, Rakesh K. Sarin
• Keywords: Current Consumption, Discounted Utility, IOR 2007, Model