Working Paper: CEPR ID: DP13300
Authors: Ludmila Matyskova; Brian Rogers; Jakub Steiner; Kehkuan Sun
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.
Keywords: habit formation; rational inattention
JEL Codes: C91; D8; D9
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| habits do not arise solely from the serial correlation of optimal actions (C69) | habits form as optimal adaptations to the decision environment (D91) |
| treatment without feedback (Y70) | past actions predict future choices (D91) |
| treatment with feedback (C91) | first-period state becomes the predictive cue (C53) |
| strength of formed habits is influenced by the decision environment (D91) | strength of formed habits (C92) |
| lower stakes and higher correlation (C10) | stronger habits (C92) |
| past actions and states (D84) | future decisions (D87) |