Goal Setting as a Self-Regulation Mechanism

36 Pages Posted: 20 Oct 2008 Last revised: 9 Jun 2009

See all articles by Anton Suvorov

Anton Suvorov

National Research University Higher School of Economics

Jeroen van de Ven

University of Amsterdam; Tinbergen Institute

Date Written: October 17, 2008

Abstract

We develop a theory of self-regulation based on goal setting for an agent with present-biased preferences. Preferences are assumed to be reference-dependent and exhibit loss aversion, as in prospect theory. The reference point is determined endogenously as an optimal self-sustaining goal. The interaction between hyperbolic discounting and loss aversion makes goals a credible and effective instrument for self-regulation. This is an entirely internal commitment device that does not rely on reputation building. We show that in some cases it is optimal to engage in indulgent behavior, and sometimes it is optimal to set seemingly dysfunctional goals. Finally, we derive a condition under which proximal (short term) goals are better than distal (long term) goals. Our results provide an implicit evolutionary rationale for the existence of loss aversion as a means of self-control.

Keywords: self-regulation, goals, time inconsistency, loss aversion, indulgence, compulsiveness, proximal and distal

JEL Classification: D00, D80, D90

Suggested Citation

Suvorov, Anton and van de Ven, Jeroen, Goal Setting as a Self-Regulation Mechanism (October 17, 2008). Available at SSRN: https://ssrn.com/abstract=1286029 or http://dx.doi.org/10.2139/ssrn.1286029

Anton Suvorov

National Research University Higher School of Economics ( email )

Shabolovka 26
Moscow, 119049
Russia

Jeroen Van de Ven (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

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