We analyze individual preferences over infinite horizon consumption choices. Our axioms provide the foundation for a recursive representation of the utility function that contains as particular cases the classical Koopmans representation (Koopmans (1960)) as well as the habit formation specification.We examine some of the consequences of our axiomatization by considering a standard consumer choice problem, and show that typically in the space of concave utility functions satisfying our axioms the consumer displays a taste for variety. The latter means that such a consumer selects optimally time variant consumption programs for any given time invariant sequence of commodities' relative prices and for all possible sequences of market discount factors. In contrast, if a concave utility function satisfies Koopmans' axioms the consumer does not display a taste for variety.
Bibliographical noteFunding Information:
We thank Massimiliano Amarante and Alessandro Citanna for helpful discussions. We also thank the editor and two anonymous referees for very useful comments that convinced us to write the paper differently. The research was supported by the NSF grant SES-135787 to AR.
© 2014 Elsevier B.V.
- Habit formation
- Taste for variety
- Time preferences