Consumption Dependent Random Utility

Abstract

We study a dynamic random utility model that allows for consumption dependence. We axiomatically analyze this model and find insights that allow us to distinguish between behavior that arises due to consumption dependence and behavior that arises due to state dependence. As part of our analysis, we show that it is impossible to distinguish between myopic and dynamically sophisticated agents when there are well defined marginal choices in each period. Building on our axiomatic analysis, we develop a revealed preference test for consumption dependent random utility. Our test can be implemented with real data, and we show that our test offers computational improvements over the natural extension of Kitamura and Stoye (2018) to our environment.