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Goal Setting as a Self-Regulation Mechanism

Author Info

  • Anton Suvorov

    ()

    (CEFIR, NES)

  • Jeroen van de Ven

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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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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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 - - - General

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Cited by:

  1. Buechel, Berno & Mechtenberg, Lydia & Petersen, Julia, 2014. "Peer Effects and Students’ Self-Control," MPRA Paper 53658, University Library of Munich, Germany.
  2. Holger Stichnoth, 2013. "Reference standards for income comparisons: evidence from immigrants' return visits," Economics Bulletin, AccessEcon, vol. 33(4), pages 2707-2717.
  3. Hsiaw, Alice, 2013. "Goal-setting and self-control," Journal of Economic Theory, Elsevier, vol. 148(2), pages 601-626.
  4. Koch, Alexander K. & Nafziger, Julia & Suvorov, Anton & van de Ven, Jeroen, 2014. "Self-rewards and personal motivation," European Economic Review, Elsevier, vol. 68(C), pages 151-167.
  5. Burger, Nicholas & Charness, Gary & Lynham, John, 2011. "Field and online experiments on self-control," Journal of Economic Behavior & Organization, Elsevier, vol. 77(3), pages 393-404, March.
  6. Koch, Alexander K. & Nafziger, Julia, 2011. "Goals and Psychological Accounting," IZA Discussion Papers 5802, Institute for the Study of Labor (IZA).
  7. Joaquín Gómez Miñambres, 2011. "Make it challenging : motivation through goal setting," Economics Working Papers we1123, Universidad Carlos III, Departamento de Economía.
  8. David Reinstein, 2014. "The Economics of the Gift," Economics Discussion Papers 749, University of Essex, Department of Economics.

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