Discussion Paper Details

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Title: Habits as Adaptations: An Experimental Study

Author(s): Ludmila Matyskova, Brian Rogers, Jakub Steiner and Keh-Kuan Sun

Publication Date: November 2018

Keyword(s): Habit formation and rational inattention

Programme Area(s): Industrial Organization

Abstract: Psychologists emphasize two aspects of habit formation: (i) habits arise when the history of a decision process correlates with optimal continuation actions, and (ii) habits alleviate cognition costs. We ask whether serial correlation of optimal actions alone induces habits or if, instead, habits form as optimal adaptations. We compare lab treatments that differ in the information provided to subjects, holding fixed the serial correlation of optimal actions. We find that past actions affect behavior only in the treatment in which this habit is useful. The result suggests that caution is warranted when modeling habits via a fixed utility over action sequences.

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Bibliographic Reference

Matyskova, L, Rogers, B, Steiner, J and Sun, K. 2018. 'Habits as Adaptations: An Experimental Study'. London, Centre for Economic Policy Research.