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Goal-setting and self-control

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  • Hsiaw, Alice

Abstract

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.

Suggested Citation

  • Hsiaw, Alice, 2013. "Goal-setting and self-control," Journal of Economic Theory, Elsevier, vol. 148(2), pages 601-626.
  • Handle: RePEc:eee:jetheo:v:148:y:2013:i:2:p:601-626
    DOI: 10.1016/j.jet.2012.08.001
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    More about this item

    Keywords

    Goal-setting; Reference dependence; Self-control; Quasi-hyperbolic discounting; Optimal stopping;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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