Goal-Setting and Self-Control

Alice Hsiaw

No 1404, Working Papers from College of the Holy Cross, Department of Economics

Abstract: 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 may 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.\ILength: 38 pages

Pages: 38 pages
Date: 2012-04, Revised 2014-08
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Citations: View citations in EconPapers (20)

Published in Journal of Economic Theory, Volume 148, Issue 2, March 2013, Pages 601-626

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Journal Article: Goal-setting and self-control (2013)
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