1. 2.Willpower and Personal Rules Roland Bénabou and Jean Tirole [2001] Roland Bénabou and Jean Tirole [2001] 8

2. Introduction Tendency to succumb to short-run impulses at the expense of long-run interest »Time-inconsistent preferences overweight present relative to future »Unable to commit to optimal course »External commiment »Internal commitment (promises to oneself) Tendency to succumb to short-run impulses at the expense of long-run interest »Time-inconsistent preferences overweight present relative to future »Unable to commit to optimal course »External commiment »Internal commitment (promises to oneself) 2. Willpower and Personal Rules (Bénabou et al. [2001]) 9

3. Introduction How to achieve self-control through adoption of personal rules? »Theory based on self-reputation over one´s willpower »Mechanism transforms lapses into precedents that undermine further self-restraint »Imperfect recall of past motives and feelings leads to self-monitoring and infering revealed preferences from past actions How to achieve self-control through adoption of personal rules? »Theory based on self-reputation over one´s willpower »Mechanism transforms lapses into precedents that undermine further self-restraint »Imperfect recall of past motives and feelings leads to self-monitoring and infering revealed preferences from past actions 2. Willpower and Personal Rules (Bénabou et al. [2001]) 10

4. The Model: Decisions and Payoffs NW W G P time Subperiod ISubperiod II a 0 0 -c b B Willpower Activity No-Willpower Activity Give Up Persevere 3 possible outcomes »{ NW }:( a, 0; 0 ) »{ W; G }:( 0, 0; b ) »{ W; P }:( 0,-c; B ) 3 possible outcomes »{ NW }:( a, 0; 0 ) »{ W; G }:( 0, 0; b ) »{ W; P }:( 0,-c; B ) 2. Willpower and Personal Rules (Bénabou et al. [2001]) 11

5. Time-inconsistent (quasi-hyperbolic) preferences Preferences: State-Dependent Willpower NW W G P time Subperiod ISubperiod II a 0 0 -c b B Willpower Activity No-Willpower Activity Give Up Persevere Intensity of temptation »stage-contingent »imperfectly known Intensity of temptation »stage-contingent »imperfectly known Willpower in normal times (known) Willpower in times of stress (revealed through experience ) 2. Willpower and Personal Rules (Bénabou et al. [2001]) 12

6. Subperiod II: Give up, whenever Subperiod II: Give up, whenever Subperiod I: {W,P}, unless Subperiod I: {W,P}, unless G P Subperiod II 0 -c b B Give Up Persevere time Subperiod I Preferences: Intertemporal conflict Willpower in times of stress (revealed through experience) 2. Willpower and Personal Rules (Bénabou et al. [2001]) 13

7. NW W Subperiod I a 0 Willpower Activity No-Willpower Activity time Period 1: {W}, unless a > expected benefits Period 1: {W}, unless a > expected benefits Period 2: {NW}, when > expected benefits Period 2: {NW}, when > expected benefits Uncertainty about degree of willpower Inferences about it from the past Probability of high willpower Preferences: Intertemporal conflict 2. Willpower and Personal Rules (Bénabou et al. [2001]) 14

8. G P time Subperiod II: Give up, whenever Subperiod II: Give up, whenever Updating belief about willpower 2 problems: »attribution »self-serving bias Updating belief about willpower 2 problems: »attribution »self-serving bias Selective memory: »forgetting lapses »making „excuses“ »„cognitive rules“ Selective memory: »forgetting lapses »making „excuses“ »„cognitive rules“ Probability of remembering past lapses Probability of remembering low costs Information: Experience and Memory Probability of high willpower signal from chosen action 2. Willpower and Personal Rules (Bénabou et al. [2001]) 15

9. NW W G P time Subperiod ISubperiod II a 0 0 -c b B Willpower Activity No-Willpower Activity Give Up Persevere Individual´s choice reflects his current belief about his own willpower Choice reflects the strength of current temptation, his „private“ information about his true type and the „public“ information about his reputation Updating his beliefs according to rational inference Mechanism 2. Willpower and Personal Rules (Bénabou et al. [2001]) 16

10. Self-reputation Concerns: Main Results 1)extend of self-control achieved increases with the individuals confidence in his own willpower 2)self-restraint is greater when situations are repeated and lapses more likely to be brought back 3)forced choices inhibit development of self- confidence and autonomy 1)extend of self-control achieved increases with the individuals confidence in his own willpower 2)self-restraint is greater when situations are repeated and lapses more likely to be brought back 3)forced choices inhibit development of self- confidence and autonomy 2. Willpower and Personal Rules (Bénabou et al. [2001]) 17

11. Personal Rules Flexibility or rigidity of personal rules: »Allowance for excuses or special circumstances »Regulation – Overregulation »Beneficial „Bright line“ rules and harmful behavior Flexibility or rigidity of personal rules: »Allowance for excuses or special circumstances »Regulation – Overregulation »Beneficial „Bright line“ rules and harmful behavior 2. Willpower and Personal Rules (Bénabou et al. [2001]) 18

12. Conclusion How can self-imposed rules constrain the individual´s behavior? »Theory of personal rules based on self- reputation »Imperfect knowledge of one´s willpower »Lapses interpreted as precedents »Fear of creating precedents and losing faith »Incentive that helps counter the traditional bias towards instant gratification How can self-imposed rules constrain the individual´s behavior? »Theory of personal rules based on self- reputation »Imperfect knowledge of one´s willpower »Lapses interpreted as precedents »Fear of creating precedents and losing faith »Incentive that helps counter the traditional bias towards instant gratification 2. Willpower and Personal Rules (Bénabou et al. [2001]) 19