Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
956936 | Journal of Economic Theory | 2013 | 26 Pages |
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. When there is sufficient commitment to expectation-based goals, goal-setting attenuates the present-biased agentʼs 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 loss aversion.
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Authors
Alice Hsiaw,