Do rational people sometimes act irrationally? A dynamic self-regulation model of sustainable consumer behavior

Significant literature in behavioral economics and psychology has examined why an individual's moral decisions sometimes appear irrational. For example, an individual may display “moral licensing”, whereby performing a good act licenses a subsequent less moral act. Another example is the “foot-in-the-door effect,” whereby an individual makes a substantial increase in the likelihood of a pro-social behaviour when there has been no change in the circumstances under which the decision is made. Both forms of behavior seem to violate economists' assumption of rational consumer behavior. This paper constructs a simple dynamic model of rational consumer behavior and shows that this can generate both moral licensing (or moral cleansing) and foot-in-the-door effects. We also discuss the implications for government policy.