Willpower and compromise effect

Masatlioglu, Y, Nakajima, D and Ozdenoren, E (2020) Willpower and compromise effect. Theoretical Economics, 15. pp. 279-317. ISSN 1933-6837 OPEN ACCESS

Abstract

This paper provides a behavioral foundation for modeling willpower as a limited cognitive resource that bridges the standard utility maximization and Strotz models. Using the agent's ex ante preferences and ex post choices, we derive a representation that captures key behavioral traits of willpower-constrained decision making. We use the model to study the pricing problem of a profit-maximizing monopolist who faces consumers with limited willpower. We show that the optimal contract often consists of three alternatives and that the consumer's choices reflect a form of the "compromise effect," which is induced endogenously.

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Item Type: Article
Subject Areas: Economics
Funder Name: Japan Society for the Promotion of Science
Subjects: D > Decision-making
P > Pricing
Date Deposited: 01 Aug 2019 09:09
Last Modified: 13 Mar 2020 17:56
URI: http://lbsresearch.london.edu/id/eprint/1193
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