IDEAS home Printed from https://ideas.repec.org/a/ecm/emetrp/v72y2004i1p119-158.html
   My bibliography  Save this article

Self-Control and the Theory of Consumption

Author

Listed:
  • Faruk Gul
  • Wolfgang Pesendorfer

Abstract

To study the behavior of agents who are susceptible to temptation in infinite horizon consumption problems under uncertainty, we define and characterize dynamic self-control (DSC) preferences. DSC preferences are recursive and separable. In economies with DSC agents, equilibria exist but may be inefficient; in such equilibria, steady state consumption is independent of initial endowments and increases in self-control. Increasing the preference for commitment while keeping self-control constant increases the equity premium. Removing nonbinding constraints changes equilibrium allocations and prices. Debt contracts can be sustained even if the only feasible punishment for default is the termination of the contract. Copyright Econometric Society 2004.

Suggested Citation

  • Faruk Gul & Wolfgang Pesendorfer, 2004. "Self-Control and the Theory of Consumption," Econometrica, Econometric Society, vol. 72(1), pages 119-158, January.
  • Handle: RePEc:ecm:emetrp:v:72:y:2004:i:1:p:119-158
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/j.1468-0262.2004.00480.x
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Piccione, Michele & Rubinstein, Ariel, 1997. "On the Interpretation of Decision Problems with Imperfect Recall," Games and Economic Behavior, Elsevier, vol. 20(1), pages 3-24, July.
    2. Ted O'Donoghue & Matthew Rabin, 1999. "Incentives for Procrastinators," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 769-816.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jude Kline, J., 2002. "Minimum Memory for Equivalence between Ex Ante Optimality and Time-Consistency," Games and Economic Behavior, Elsevier, vol. 38(2), pages 278-305, February.
    2. Andrés Perea & Elias Tsakas, 2019. "Limited focus in dynamic games," International Journal of Game Theory, Springer;Game Theory Society, vol. 48(2), pages 571-607, June.
    3. Johannes Johnen, 2019. "Automatic‐renewal contracts with heterogeneous consumer inertia," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(4), pages 765-786, November.
    4. Min Gong & David Krantz & Elke Weber, 2014. "Why Chinese discount future financial and environmental gains but not losses more than Americans," Journal of Risk and Uncertainty, Springer, vol. 49(2), pages 103-124, October.
    5. Lurås, Hilde, 2009. "A healthy lifestyle: The product of opportunities and preferences," HERO Online Working Paper Series 2001:11, University of Oslo, Health Economics Research Programme.
    6. Ehud Kalai & Eilon Solan, 2000. "Randomization and Simplification," Discussion Papers 1283, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    7. Philippe Jehiel & Jakub Steiner, 2020. "Selective Sampling with Information-Storage Constraints [On interim rationality, belief formation and learning in decision problems with bounded memory]," The Economic Journal, Royal Economic Society, vol. 130(630), pages 1753-1781.
    8. von Stengel, Bernhard & Koller, Daphne, 1997. "Team-Maxmin Equilibria," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 309-321, October.
    9. Damgaard, Mette Trier & Nielsen, Helena Skyt, 2018. "Nudging in education," Economics of Education Review, Elsevier, vol. 64(C), pages 313-342.
    10. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
    11. Philippe Jehiel, 2022. "Analogy-Based Expectation Equilibrium and Related Concepts:Theory, Applications, and Beyond," Working Papers halshs-03735680, HAL.
    12. Araujo, Luis & Guimaraes, Bernardo, 2015. "Intertemporal coordination with delay options," Journal of Economic Theory, Elsevier, vol. 157(C), pages 793-810.
    13. Pedro Bordalo & Nicola Gennaioli & Andrei Shleifer, 2020. "Memory, Attention, and Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 135(3), pages 1399-1442.
    14. O'Donoghue, Ted & Rabin, Matthew, 2008. "Procrastination on long-term projects," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 161-175, May.
    15. Igor Kopylov & Joshua Miller, 2018. "Subjective beliefs and confidence when facts are forgotten," Journal of Risk and Uncertainty, Springer, vol. 57(3), pages 281-299, December.
    16. Olivier Compte & Andrew Postlewaite, 2007. "Effecting Cooperation," PIER Working Paper Archive 09-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 29 May 2009.
    17. Florina Salaghe & Dimitra Papadovasilaki & Federico Guerrero & James Sundali, 2020. "Temptation and Retirement Accounts: A Story of Time Inconsistency and Bounded Rationality," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 6(3), pages 173-198, April.
    18. Streufert, Peter, 2018. "The Category of Node-and-Choice Forms, with Subcategories for Choice-Sequence Forms and Choice-Set Forms," MPRA Paper 90490, University Library of Munich, Germany.
    19. Jehiel, Philippe, 2005. "Analogy-based expectation equilibrium," Journal of Economic Theory, Elsevier, vol. 123(2), pages 81-104, August.
    20. Battigalli, Pierpaolo & Leonetti, Paolo & Maccheroni, Fabio, 2020. "Behavioral equivalence of extensive game structures," Games and Economic Behavior, Elsevier, vol. 121(C), pages 533-547.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:emetrp:v:72:y:2004:i:1:p:119-158. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: https://edirc.repec.org/data/essssea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/essssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.