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Temptation, Welfare and Revealed Preference

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Author Info

  • Jawwad Noor

    (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 (2001, 2004) 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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File URL: http://128.118.178.162/eps/mic/papers/0509/0509009.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0509009.

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Length: 63 pages
Date of creation: 28 Sep 2005
Date of revision:
Handle: RePEc:wpa:wuwpmi:0509009

Note: Type of Document - pdf; pages: 63
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Web page: http://128.118.178.162

Related research

Keywords: Self-Control; Temptation; Commitment; Preference Reversals; Revealed Preference;

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References

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  1. Ted O'Donoghue & Matthew Rabin, 1996. "Doing It Now or Later," Discussion Papers 1172, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Faruk Gul & Wolfgang Pesendorfer, 2007. "Harmful Addiction," Review of Economic Studies, Oxford University Press, vol. 74(1), pages 147-172.
  3. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
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  9. Jawwad Noor, 2006. "Menu-Dependent Self-Control," Boston University - Department of Economics - Working Papers Series WP2006-021, Boston University - Department of Economics.
  10. R. Mehra & E. Prescott, 2010. "The equity premium: a puzzle," Levine's Working Paper Archive 1401, David K. Levine.
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  13. Peleg, Bezalel & Yaari, Menahem E, 1973. "On the Existence of a Consistent Course of Action when Tastes are Changing," Review of Economic Studies, Wiley Blackwell, vol. 40(3), pages 391-401, July.
  14. Robert E. Hall, 1988. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc.
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  17. 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.
  18. Epstein, Larry G & Zin, Stanley E, 1989. "Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework," Econometrica, Econometric Society, vol. 57(4), pages 937-69, July.
  19. John C. Harsanyi, 1953. "Cardinal Utility in Welfare Economics and in the Theory of Risk-taking," Journal of Political Economy, University of Chicago Press, vol. 61, pages 434.
  20. Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, 01.
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