Working Paper: CEPR ID: DP12354
Authors: Yusufcan Masatlioglu; Daisuke Nakajima; Emre Ozdenoren
Abstract: This paper provides a behavioral foundation for the willpower as limited cognitive resource model which bridges the standard utility maximization and the 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 the consumer’s choices reflect a form of the “compromise effect” which is induced endogenously.
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JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| willpower stock (G31) | consumer choice (D10) |
| monopolist's pricing strategy (D42) | consumer behavior (D19) |
| willpower stock (G31) | likelihood of choosing less preferred alternative (D81) |
| low willpower (D91) | compromise choice (D71) |