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Goal Setting as a Self-Regulation Mechanism

  • Anton Suvorov


    (CEFIR, NES)

  • Jeroen van de Ven

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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  10. SHALEV, Jonathan, 1997. "Loss aversion and bargaining," CORE Discussion Papers 1997006, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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  19. Kivetz, Ran & Simonson, Itamar, 2002. " Self-Control for the Righteous: Toward a Theory of Precommitment to Indulgence," Journal of Consumer Research, University of Chicago Press, vol. 29(2), pages 199-217, September.
  20. Ariel Rubinstein, 2003. ""Economics and Psychology"? The Case of Hyperbolic Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1207-1216, November.
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  23. Arthur J. Robson, 2001. "The Biological Basis of Economic Behavior," Journal of Economic Literature, American Economic Association, vol. 39(1), pages 11-33, March.
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