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Willpower and compromise effect

Author

Listed:
  • Masatlioglu, Yusufcan

    (Department of Economics, University of Maryland)

  • Nakajima, Daisuke

    (Department of Economics, Otaru University of Commerce)

  • Ozdenoren, Emre

    (Department of Economics, London Business School)

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, 2020. "Willpower and compromise effect," Theoretical Economics, Econometric Society, vol. 15(1), January.
    • Handle: RePEc:the:publsh:3086
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Yusufcan Masatlioglu & Daisuke Nakajima & Emre Ozdenoren, 2019. "Contract Design with Costly Convex Self-Control," Papers 1907.07628, arXiv.org.
    2. 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.
    3. 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.
    4. Fernando Payró Chew, 2022. "Mixture-Dependent Preference for Commitment," Working Papers 1365, Barcelona School of Economics.
    5. Barokas, Guy, 2024. "Positively correlated choice," Mathematical Social Sciences, Elsevier, vol. 127(C), pages 62-71.
    6. Mihm, Maximilian & Ozbek, Kemal, 2018. "Mood-driven choices and self-regulation," Journal of Economic Theory, Elsevier, vol. 176(C), pages 727-760.
    7. Qin, Dan, 2024. "A simple model of two-stage choice," Journal of Mathematical Economics, Elsevier, vol. 112(C).

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    More about this item

    Keywords

    Willpower; compromise effect; self control; temptation; contracting;
    All these keywords.

    JEL classification:

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

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