Modeling internal commitment mechanisms and self-control: A neuroeconomics approach to consumption-saving decisions

Jess Benhabib, Alberto Bisin

    Research output: Contribution to journalArticlepeer-review

    Abstract

    We provide a new model of consumption-saving decisions which explicitly allows for internal commitment mechanisms and self-control. Agents have the ability to invoke either automatic processes that are susceptible to the temptation of 'over-consuming', or alternative control processes which require internal commitment but are immune to such temptations. Standard models in behavioral economics ignore such internal commitment mechanisms. We justify our model by showing that much of its construction is consistent with dynamic choice and cognitive control as they are understood in cognitive neuroscience. The dynamic consumption-saving behavior of an agent in the model is characterized by a simple consumption-saving goal and a cut-off rule for invoking control processes to inhibit automatic processes and implement the goal. We discuss empirical tests of our model with available individual consumption data and we suggest critical tests with brain-imaging and experimental data.

    Original languageEnglish (US)
    Pages (from-to)460-492
    Number of pages33
    JournalGames and Economic Behavior
    Volume52
    Issue number2
    DOIs
    StatePublished - Aug 2005

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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