“The relation between temptations and the level of consumption plays a key role in explaining the observed behaviors of the poor…

Abhijit V. Banerjee and Sendhil Mullainathan: The Shape of Temptation: Implications for the Economic Lives of the Poor: “The relation between temptations and the level of consumption plays a key role in explaining the observed behaviors of the poor…

…Temptation goods… generate positive utility for the self that consumes them, but not for any previous self that anticipates that they will be consumed…. The assumption… that the fraction of the marginal dollar that is spent on temptation goods decreases with overall consumption has a number of striking implications for the… behavior of the poor…. Predicted behaviors under the declining temptation assumption can help us explain some of the puzzling facts about the poor that have been emphasized in the recent literature.

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