November, 2001 | FARUK GUL AND WOLFGANG PESENDORFER
The paper presents a two-period model of dynamic choice where individuals face temptation in the second period. Preferences over sets of alternatives are defined, and the model identifies commitment ranking, temptation ranking, and the cost of self-control. The authors introduce comparative measures of preference for commitment and self-control, relating them to their representations. The key representation is $ U(A) := \max_{x \in A} \{u(x) + v(x)\} - \max_{y \in A} v(y) $, where $ u $ and $ v $ are von Neumann-Morgenstern utility functions. The model satisfies four axioms, including Set Betweenness, which captures the impact of temptation on preferences. The paper also considers the limiting case where self-control is prohibitively costly, leading to overwhelming temptation. The authors analyze both self-control and overwhelming temptation preferences, showing how they differ in behavior. The paper concludes with measures of preference for commitment and self-control, showing how they can be compared using the representations. The results highlight the importance of temptation in dynamic decision-making and the role of self-control in resisting it.The paper presents a two-period model of dynamic choice where individuals face temptation in the second period. Preferences over sets of alternatives are defined, and the model identifies commitment ranking, temptation ranking, and the cost of self-control. The authors introduce comparative measures of preference for commitment and self-control, relating them to their representations. The key representation is $ U(A) := \max_{x \in A} \{u(x) + v(x)\} - \max_{y \in A} v(y) $, where $ u $ and $ v $ are von Neumann-Morgenstern utility functions. The model satisfies four axioms, including Set Betweenness, which captures the impact of temptation on preferences. The paper also considers the limiting case where self-control is prohibitively costly, leading to overwhelming temptation. The authors analyze both self-control and overwhelming temptation preferences, showing how they differ in behavior. The paper concludes with measures of preference for commitment and self-control, showing how they can be compared using the representations. The results highlight the importance of temptation in dynamic decision-making and the role of self-control in resisting it.