Goals and Bracketing under Mental Accounting

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52 Citations (Scopus)

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.

Original languageEnglish
JournalJournal of Economic Theory
Volume162
Pages (from-to)305-351
Number of pages46
ISSN0022-0531
DOIs
Publication statusPublished - 1 Mar 2016

Keywords

  • Choice bracketing
  • Goals
  • Mental accounting
  • Quasi-hyperbolic discounting
  • Reference-dependent preferences
  • Self-control

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