Goals and bracketing under mental accounting

Alexander Koch and Julia Nafziger

Journal of Economic Theory, 2016, vol. 162, issue C, 305-351

Abstract: Behavioral economics struggles to explain why people sometimes evaluate outcomes separately (narrow bracketing of mental accounts) and sometimes jointly (broad bracketing). We develop a theory of endogenous bracketing, where people set goals to tackle self-control problems. Goals induce reference points that make substandard performance painful. Evaluating goals in a broadly bracketed mental account insulates an individual from exogenous risk of failure; but because decisions or risks in different tasks become substitutes there are incentives to deviate from goals that are absent under narrow bracketing. Extensions include goal revision, naïveté about self-control, income targeting, and firms' bundling strategies.

Keywords: Quasi-hyperbolic discounting; Reference-dependent preferences; Self-control; Mental accounting; Choice bracketing; Goals (search for similar items in EconPapers)
JEL-codes: D03 D81 D91 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:162:y:2016:i:c:p:305-351

DOI: 10.1016/j.jet.2016.01.001

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