Temptation, Welfare and Revealed Preference

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Temptation, Welfare and Revealed Preference

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Jawwad Noor () (Department of Economics, Boston University)

Abstract

Choice may be determined both by a consideration of one’s welfare (normative preference) and by desires (temptation preference). To provide foundations for such a theory, Gul and Pesendorfer [10, 11] adopt a preference over choice problems as a primitive and hypothesize that temptation creates a preference for commitment. This paper argues that temptation may in fact create the absence of a preference for commitment, and that the primitive may not be empirically meaningful since it requires us to observe behavior in the absence of temptation. An alternative approach to providing foundations is introduced. Motivated by the evidence on preference reversals, it is hypothesized that delayed temptations are easier to resist than immediate temptations. Normative preference is derived via choices between sufficiently delayed alternatives, and temptation preference is inferred from discrepancies between normative preference and choice. With a choice correspondence as the primitive, agents who are ‘tempted not to commit’ are modeled. The foundations of the model are used to identify evidence supporting such temptation.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2005-15.

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Length: 63 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:bos:wpaper:wp2005-15

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Find related papers by JEL classification:
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D60 - Microeconomics - - Welfare Economics - - - General

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-03-18 (All new papers)
NEP-DCM-2006-03-18 (Discrete Choice Models)

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Sendhil Mullainathan & Richard H. Thaler, 2000. "Behavioral Economics," NBER Working Papers 7948, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, 01. [Downloadable!] (restricted)
Other versions:
- W. Pesendorfer & F. Gul, 1999. "Self-Control and the Theory of Consumption," Princeton Economic Theory Papers 99f2, Economics Department, Princeton University.
Krusell, Per & Kuruscu, Burhanettin & Smith, Anthony Jr., 2002. "Time orientation and asset prices," Journal of Monetary Economics, Elsevier, vol. 49(1), pages 107-135, January. [Downloadable!] (restricted)
Other versions:
- Per Krusell & Burhanettin Kuruscu & Anthony A. Smith, Jr., . "Time Orientation and Asset Prices," GSIA Working Papers 2001-13, Carnegie Mellon University, Tepper School of Business.
Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S164-S187, February. [Downloadable!] (restricted)
Jawwad Noor, 2005. "Commitment and Self-Control," Boston University - Department of Economics - Working Papers Series WP2005-014, Boston University - Department of Economics. [Downloadable!]
Other versions:
- Jawwad Noor, 2005. "Commitment and Self-Control," Microeconomics 0509008, EconWPA. [Downloadable!]
- Noor, Jawwad, 2007. "Commitment and self-control," Journal of Economic Theory, Elsevier, vol. 135(1), pages 1-34, July. [Downloadable!] (restricted)
Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
Ted O'Donoghue & Matthew Rabin, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March. [Downloadable!] (restricted)
Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November. [Downloadable!] (restricted)
Other versions:
- W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.

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