Article ID Journal Published Year Pages File Type
956936 Journal of Economic Theory 2013 26 Pages PDF
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.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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