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 language | English |
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Journal | Journal of Economic Theory |
Volume | 162 |
Pages (from-to) | 305-351 |
Number of pages | 46 |
ISSN | 0022-0531 |
DOIs | |
Publication status | Published - 1 Mar 2016 |
Keywords
- Choice bracketing
- Goals
- Mental accounting
- Quasi-hyperbolic discounting
- Reference-dependent preferences
- Self-control