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Mood-driven choices and self-regulation

Maximilian Mihm and Kemal Ozbek

Journal of Economic Theory, 2018, vol. 176, issue C, 727-760

Abstract: We model a decision maker who can exert costly effort to regulate herself, thereby reducing internal conflicts between her normative objectives and mood-driven choices. We provide an axiomatic characterization of the model, and show how costs of self-regulation can be elicited and compared across individuals. In a consumption-saving problem we show that self-regulation can generate unintended income effects, which have important implications for public policies on saving behavior. We also provide several examples to illustrate how self-regulation can rationalize many well-known choice anomalies. These behavioral implications follow from a key feature of the model that self-regulation decisions can respond to changes in incentives.

Keywords: Choice anomalies; Consumption-saving; Desire for commitment; Internal conflict; Random Strotz; Self-regulation (search for similar items in EconPapers)
JEL-codes: D11 D91 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jetheo:v:176:y:2018:i:c:p:727-760