The economics of escalation

Abstract

Escalation is a key characteristic of many consumption behaviors that has not received theoretical attention. This paper aims to propose both a definition and a theoretical treatment of escalation in consumption. We define escalation as a subject’s attempt to obtain “more” or engage in consumption behaviors that are “more intense” on a measurable, quantitative or qualitative, objective or subjective, scale (more difficult ski slopes, stronger drugs, harder sex, better restaurants etc.), even if the subject preferred less intense consumption behaviors in the past. Further, this evolution in behavior also occurs if the budget constraint does not change. We will find endogenous and exogenous theoretical microfoundations for escalation in models of hedonic adaptation, desire for novelty, acquisition of consumption skills, rising aspirations, positional effects, and envy. However, we will also discuss the possibility that the tendency to escalate is a specific innate behavior inherent to human nature. Finally, we will propose a preliminary theoretical formalization of such behavior and indicate the possible implications of taking escalation into adequate consideration. JEL codes: B52, D11, D90, D91, I31