Goals and Bracketing under Mental Accounting

Alexander Koch; Julia Nafziger

doi:10.1016/j.jet.2016.01.001

Goals and Bracketing under Mental Accounting

Publikation: Bidrag til tidsskrift/Konferencebidrag i tidsskrift /Bidrag til avis › Tidsskriftartikel › Forskning › peer review

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Abstract

Behavioral economics struggles to explain why people sometimes evaluate outcomes separately (narrow bracketing of mental accounts) and sometimes jointly (broad bracketing). We develop a theory of endogenous bracketing, where people set goals to tackle self-control problems. Goals induce reference points that make substandard performance painful. Evaluating goals in a broadly bracketed mental account insulates an individual from exogenous risk of failure; but because decisions or risks in different tasks become substitutes there are incentives to deviate from goals that are absent under narrow bracketing. Extensions include goal revision, naïveté about self-control, income targeting, and firms' bundling strategies.

Originalsprog	Engelsk
Tidsskrift	Journal of Economic Theory
Vol/bind	162
Sider (fra-til)	305-351
Antal sider	46
ISSN	0022-0531
DOI	https://doi.org/10.1016/j.jet.2016.01.001
Status	Udgivet - 1 mar. 2016

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title = "Goals and Bracketing under Mental Accounting",

abstract = "Behavioral economics struggles to explain why people sometimes evaluate outcomes separately (narrow bracketing of mental accounts) and sometimes jointly (broad bracketing). We develop a theory of endogenous bracketing, where people set goals to tackle self-control problems. Goals induce reference points that make substandard performance painful. Evaluating goals in a broadly bracketed mental account insulates an individual from exogenous risk of failure; but because decisions or risks in different tasks become substitutes there are incentives to deviate from goals that are absent under narrow bracketing. Extensions include goal revision, na{\"i}vet{\'e} about self-control, income targeting, and firms' bundling strategies.",

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AB - Behavioral economics struggles to explain why people sometimes evaluate outcomes separately (narrow bracketing of mental accounts) and sometimes jointly (broad bracketing). We develop a theory of endogenous bracketing, where people set goals to tackle self-control problems. Goals induce reference points that make substandard performance painful. Evaluating goals in a broadly bracketed mental account insulates an individual from exogenous risk of failure; but because decisions or risks in different tasks become substitutes there are incentives to deviate from goals that are absent under narrow bracketing. Extensions include goal revision, naïveté about self-control, income targeting, and firms' bundling strategies.

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KW - Mental accounting

KW - Quasi-hyperbolic discounting

KW - Reference-dependent preferences

KW - Self-control

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DO - 10.1016/j.jet.2016.01.001

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VL - 162

SP - 305

EP - 351

JO - Journal of Economic Theory

JF - Journal of Economic Theory

ER -

Goals and Bracketing under Mental Accounting

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