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Goal-setting and self-control

  • Hsiaw, Alice

This paper addresses the role of non-binding goals to attenuate time inconsistency. Present-biased agents have linear reference-dependent preferences and endogenously set a goal that is the reference point. They face an infinite horizon, optimal stopping problem in continuous time. When there is sufficient commitment to expectation-based goals, goal-setting attenuates the present-biased agentʼs tendency to stop too early, and may even lead an agent to wait longer than the first-best. In particular, reference dependence is strictly worse for a time-consistent agent. Notably, none of the effects of goal-setting require loss aversion.

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Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 148 (2013)
Issue (Month): 2 ()
Pages: 601-626

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Handle: RePEc:eee:jetheo:v:148:y:2013:i:2:p:601-626
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