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Goal Setting as a Self-Regulation Mechanism

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Author Info
Anton Suvorov () (CEFIR, NES)
Jeroen van de Ven

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Abstract

We develop a theory of self-regulation based on goal setting for an agent with present-biased preferences. Preferences are assumed to be reference-dependent and exhibit loss aversion, as in prospect theory. The reference point is determined endogenously as an optimal self-sustaining goal. The interaction between hyperbolic discounting and loss aversion makes goals a credible and effective instrument for self-regulation. This is an entirely internal commitment device that does not rely on reputation building. We show that in some cases it is optimal to engage in indulgent behavior, and sometimes it is optimal to set seemingly dysfunctional goals. Finally, we derive a condition under which proximal (short term) goals are better than distal (long term) goals. Our results provide an implicit evolutionary rationale for the existence of loss aversion as a means of self-control.

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Publisher Info
Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0122.

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Length: 31 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:cfr:cefirw:w0122

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Related research
Keywords: self-regulation; goals; time inconsistency; loss aversion; indulgence; compulsiveness; proximal and distal;

Find related papers by JEL classification:
D00 - Microeconomics - - General - - - General
D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. Ariel Rubinstein, 2003. ""Economics and Psychology"? The Case of Hyperbolic Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1207-1216, November. [Downloadable!] (restricted)
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    Other versions:
  4. Drew Fudenberg & David K. Levine, 2006. "A Dual Self Model of Impulse Control," Harvard Institute of Economic Research Working Papers 2112, Harvard - Institute of Economic Research. [Downloadable!]
    Other versions:
  5. Stefano DellaVigna & Ulrike Malmendier, 2006. "Paying Not to Go to the Gym," American Economic Review, American Economic Association, vol. 96(3), pages 694-719, June. [Downloadable!]
  6. Markus K. Brunnermeier, 2004. "Learning to Reoptimize Consumption at New Income Levels: A Rationale for Prospect Theory," Journal of the European Economic Association, MIT Press, vol. 2(1), pages 98-114, 03. [Downloadable!] (restricted)
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  8. John A. List, 2004. "Neoclassical Theory Versus Prospect Theory: Evidence from the Marketplace," Framed Field Experiments 0047, The Field Experiments Website. [Downloadable!]
    Other versions:
  9. Matthew Rabin, 2006. "A Model of Reference-Dependent Preferences," The Quarterly Journal of Economics, MIT Press, vol. 121(4), pages 1133-1165, November. [Downloadable!] (restricted)
  10. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  11. Roland Benabou & Jean Tirole, 2003. "Intrinsic and Extrinsic Motivation," Review of Economic Studies, Blackwell Publishing, vol. 70(3), pages 489-520, 07. [Downloadable!] (restricted)
  12. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  13. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, vol. 67(2), pages 76-90, March.
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  15. Nava Ashraf & Dean Karlan & Wesley Yin, 2006. "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 635-672, May. [Downloadable!] (restricted)
    Other versions:
  16. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November. [Downloadable!] (restricted)
  17. Partha Dasgupta & Eric Maskin, 2005. "Uncertainty and Hyperbolic Discounting," American Economic Review, American Economic Association, vol. 95(4), pages 1290-1299, September. [Downloadable!]
    Other versions:
  18. Arthur J. Robson, 2002. "Evolution and Human Nature," Journal of Economic Perspectives, American Economic Association, vol. 16(2), pages 89-106, Spring. [Downloadable!] (restricted)
  19. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall. [Downloadable!] (restricted)
  20. Arthur J. Robson, 2001. "The Biological Basis of Economic Behavior," Journal of Economic Literature, American Economic Association, vol. 39(1), pages 11-33, March. [Downloadable!] (restricted)
  21. John A. List, 2003. "Does Market Experience Eliminate Market Anomalies?," The Quarterly Journal of Economics, MIT Press, vol. 118(1), pages 41-71, February. [Downloadable!] (restricted)
  22. Kivetz, Ran & Simonson, Itamar, 2002. " Self-Control for the Righteous: Toward a Theory of Precommitment to Indulgence," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 29(2), pages 199-217, September.
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