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Willpower and Compromise Effect

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

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.

Suggested Citation

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

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    Cited by:

    1. 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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