Goals and Psychological Accounting

Alexander Koch and Julia Nafziger

No 5802, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: We model how people formulate and evaluate goals to overcome self-control problems. People often attempt to regulate their behavior by evaluating goal-related outcomes separately (in narrow psychological accounts) rather than jointly (in a broad account). To explain this evidence, our theory of endogenous narrow or broad psychological accounts combines insights from the literatures on goals and mental accounting with models of expectations-based reference-dependent preferences. By formulating goals the individual creates expectations that induce reference points for task outcomes. These goal-induced reference points make substandard performance psychologically painful and motivate the individual to stick to his goals. How strong the commitment to goals is depends on the type of psychological account. We provide conditions when it is optimal to evaluate goals in narrow accounts. The key intuition is that broad accounts make decisions or risks in different tasks substitutes and thereby create incentives to deviate from goals. Model extensions explore the robustness of our results to different timing assumptions and goal and account revision.

Keywords: self-control; quasi-hyperbolic discounting; reference-dependent preferences; loss aversion; mental accounting; goals (search for similar items in EconPapers)
JEL-codes: A12 C70 D81 D91 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2011-06
New Economics Papers: this item is included in nep-cbe, nep-exp, nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - revised version published as 'Goals and Bracketing under Mental Accounting' in: Journal of Economic Theory, 2016, 162, 305–351.

Downloads: (external link)
https://docs.iza.org/dp5802.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp5802

Ordering information: This working paper can be ordered from
IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

Access Statistics for this paper

More papers in IZA Discussion Papers from Institute of Labor Economics (IZA) IZA, P.O. Box 7240, D-53072 Bonn, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Holger Hinte ().