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Monday, February 26, 2007

A Dual-Self Model of Impulse Control

The American Economic Review
Vol. 96, No. 5, December 2006





Drew Fudenberg E-mail: dfudenberg@harvard.edu.

and David K. Levine

Abstract

We propose that a simple "dual-self" model gives a unified explanation for several empirical regularities, including the apparent time inconsistency that has motivated models of quasi-hyperbolic discounting and Rabin's paradox of risk aversion in the large and small.

The model also implies that self-control costs imply excess delay, as in the O'Donoghue and Rabin models of quasi-hyperbolic utility, and it explains experimental evidence that increased cognitive load makes temptations harder to resist.

The base version of our model is consistent with the Gul-Pesendorfer axioms, but we argue that these axioms must be relaxed to account for the effect of cognitive load.