Bad Temptation

Area of Science:

• Behavioral Economics
• Decision Theory
• Microeconomic Theory

Background:

• Agents often face choices involving immediate gratification versus long-term goals, a phenomenon studied in self-control models.
• Understanding the interplay between preferences, temptations, and the cost of self-control is crucial for explaining observed economic behavior.
• Existing models may require complex parameterizations to capture these dynamics.

Purpose of the Study:

• To develop and analyze a static self-control model.
• To simplify the representation of an agent's temptation ranking relative to their preferences.
• To establish a method for identifying the model's parameters using choice data.

Main Methods:

• Formulation of a static self-control model incorporating preferences, temptation ranking, and self-control costs.
• Mathematical analysis to demonstrate that assuming temptation ranking is the opposite of preference does not limit the model's scope.
• Characterization of the model by relaxing the Weak Axiom of Revealed Preference (WARP).

Main Results:

• It is without loss of generality to assume an agent's temptation ranking is the opposite of her preference.
• Violations of the Weak Axiom of Revealed Preference (WARP) can be systematically identified within this model.
• These WARP violations provide a mechanism for empirically identifying the model's underlying parameters.

Conclusions:

• The proposed static self-control model offers a parsimonious framework for understanding choice behavior.
• The simplification of temptation ranking reduces analytical complexity.
• The model's parameters can be estimated by observing deviations from rational choice axioms, specifically WARP.