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3. Self-Control in Peer Groups (Bénabou et al. [2002])

3. Self-Control in Peer Groups (Bénabou et al. [2002]). Set-Up of a general model for willpower and self-control : Imagine a situation, where an individual I lives in 2 periods and can decide at the beginning of each period whether he carries out a no willpower activity ( NW ) or

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3. Self-Control in Peer Groups (Bénabou et al. [2002])

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  1. 3. Self-Control in Peer Groups (Bénabou et al. [2002]) Set-Up of a general model for willpower and self-control: • Imagine a situation, where an individual I lives in 2 periods and can decide at the beginning of each period whether he carries out • a no willpower activity (NW) or • a willpower dependent activity (W). • It is assumed that I opts for W. • He has then the option to • Persevere (P) or • Give up (G). • G gives an immediate payoff of A whereas G pays B in the future. • Present Value of B > A. 20

  2. 3. Self-Control in Peer Groups (Bénabou et al. [2002]) But: • Individual has a self-control problem. • He does not only discount with a standard discount rate but with a hyperbolic discount rate (he uses a higher discount rate for earlier periods than for later periods) • Not giving-in is costly. There exist two types of Individuals: cL = strong-willpower type (low cost) cH = low-willpower type (high cost) • Individual does not know his c. He can only learn it from self-monitoring. 21

  3. 3. Self-Control in Peer Groups (Bénabou et al. [2002]) • Individual compares • payoffs from P and G. • To compare he needs to • know about the • probability of being a • strong-willpower type. • There exists some level • of confidence p* where • individual always opts • for P. X-Axis: p = level of confidence of being cL Y-Axis: x (p) = probability that I plays strategy P 22

  4. 3. Self-Control in Peer Groups (Bénabou et al. [2002]) Model which includes effects from peer groups: • Two Individuals face the same self-control problem. • Two agents have the same level of confidence in their willpower (pi=pj) at beginning. • Individual can observe actions of other agent and learn from it. • By observing another agent, he can either • become more encouraged, if the other agent successfully resists temptation (-> plays P). • become less encouraged, if the other agent cannot resist temptation (-> plays G). 23

  5. 3. Self-Control in Peer Groups (Bénabou et al. [2002]) • Decision by one agent to persevere now leads to two possible different states of the world : • Agent 1 plays P ; Agent 2 plays P as well (PP). • Agent 1 plays P ; Agent 2 plays G (PG). • New key element: expected return to resisting one‘s impulses now depends on what the other agent is likely to do. 24

  6. 3. Self-Control in Peer Groups (Bénabou et al. [2002]) • 3 Situations possible: • Agent 1 plays P, Agent 2 plays P • XPP (p) > X (p) • Agent 1 plays P, Agenst 2 plays G • XPG (p) < X (p) • Agent 1 plays P, Agent 2 plays with some probability P and with some other probability G. 25

  7. 3. Self-Control in Peer Groups (Bénabou et al. [2002]) • main results from paper: • With respect to self-control group membership is preferable, when : • group members have at least a minimal level of confidence in their own and their peers‘ ability to resist temptation. • partner is someone with a slightly worse self-control problem (a „too perfect“ partner“ is problematic because one does not learn anything from his actions). 26

  8. 4. Literature: • Bénabou, R. and Tirole J. (2000), „Willpower and Personal Rules“, Princeton University mimeo • Bénabou, R. , Battaglini, M. and Tirole, J. (2002), „Self-Control in Peer Groups“ • Freud, S. , „The Ego and the Id.“ (London: Hogarth) • Stigler, George J. , „The Theory of Price“, 3d ed. New York : Macmillan, 1966 • Thaler, R.H. and H.M. Shefrin (1981), „An Economic Theory of Self-Control“, Journal of Political Economy, 89 (2), 392 – 406 Papers from Bénabou can be downloaded from http://www.princeton.edu/~rbenabou 27

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