Habit Formation and the Self -fulfilling “Bad Steady State Equilibrium ”
Habit Formation and the Self -fulfilling “Bad Steady State Equilibrium ”

Summary/Abstract: Social norms and habits in consumption determine what is regarded as fair, influencing in sucha way the economically and socially significant choices people make. We should be able to overcomethe inside tension of unevenly distributed income, be able not to exploit the unfair situation forpersonal benefits if we know the long-term consequences. Only doing this we will stimulate anefficient equilibrium solution for the whole group. Expecting that an irrational reaction will have itssupporters and acting against the common attitude, not taking into account the new opportunity forgains, we in fact contribute towards better market efficiency. Individuals have a need to believe ina fair world just to play safe that not the whole society will act as free rider. The conclusion itself isthat sometimes, even the irrational decision of a small group of people, trying to adjust inequality,can be beneficial for the society. In order to be able to predict more successfully consumer behavioralpatterns we need to enrich the rationality model with a model of social commitment.

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