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Willpower and Compromise Effect

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  • Ozdenoren, Emre
  • Masatlioglu, Yusufcan
  • Nakajima, Daisuke

Abstract

This paper provides a behavioral foundation for the willpower as limited cognitive resource model which bridges the standard utility maximization and the Strotz models. Using the agent’s ex ante preferences and ex post choices, we derive a representation that captures key behavioral traits of willpower constrained decision making. We use the model to study the pricing problem of a profit maximizing monopolist who faces consumers with limited willpower. We show that the optimal contract often consists of three alternatives and the consumer’s choices reflect a form of the “compromise effect†which is induced endogenously.

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  • Ozdenoren, Emre & Masatlioglu, Yusufcan & Nakajima, Daisuke, 2017. "Willpower and Compromise Effect," CEPR Discussion Papers 12354, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12354
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    Cited by:

    1. Shinsuke Ikeda & Takeshi Ojima, 2021. "Tempting goods, self-control fatigue, and time preference in consumer dynamics," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(4), pages 1171-1216, November.
    2. Yusufcan Masatlioglu & Daisuke Nakajima & Emre Ozdenoren, 2019. "Contract Design with Costly Convex Self-Control," Papers 1907.07628, arXiv.org.
    3. Fernando Payró Chew, 2022. "Mixture-Dependent Preference for Commitment," Working Papers 1365, Barcelona School of Economics.
    4. Borah, Abhinash & Garg, Raghvi, 2023. "Reference-dependent self-control: Menu effects and behavioral choices," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 129-145.
    5. Mihm, Maximilian & Ozbek, Kemal, 2018. "Mood-driven choices and self-regulation," Journal of Economic Theory, Elsevier, vol. 176(C), pages 727-760.

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    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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