Goal-setting and self-control

Alice Hsiaw
2013 Journal of Economic Theory  
This paper addresses the role of non-binding goals to attenuate time inconsistency. Present-biased agents have linear reference-dependent preferences and endogenously set a goal that is the reference point. They face an infinite horizon, optimal stopping problem in continuous time, where there exists an option value of waiting due to uncertainty. When there is sufficient commitment to expectation-based goals, goal-setting attenuates the time-inconsistent agent's tendency to stop too early, and
more » ... ay even lead an agent to wait longer than the first-best. In particular, reference dependence is strictly worse for a time-consistent agent. Notably, none of the effects of goal-setting require any form of loss aversion.
doi:10.1016/j.jet.2012.08.001 fatcat:qqfjcdqi7ndx7eh4mxfdv72d7i