Willpower and Compromise Effect

38 Pages Posted: 9 Oct 2017

See all articles by Yusufcan Masatlioglu

Yusufcan Masatlioglu

University of Michigan

Daisuke Nakajima

Otaru University of Commerce

Emre Ozdenoren

London Business School; Centre for Economic Policy Research (CEPR)

Date Written: October 2017

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.

Suggested Citation

Masatlioglu, Yusufcan and Nakajima, Daisuke and Ozdenoren, Emre, Willpower and Compromise Effect (October 2017). CEPR Discussion Paper No. DP12354, Available at SSRN: https://ssrn.com/abstract=3049911

Yusufcan Masatlioglu (Contact Author)

University of Michigan ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Daisuke Nakajima

Otaru University of Commerce ( email )

3-5-21 Midori
Otaru-shi, Hokkaido 047-8501
United States

Emre Ozdenoren

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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