Goal-setting and self-control
The paper studies the self-control effects of setting non-binding goals. To this end, an agent is considered who derives utility from standard consumption that arises from a material outcome and from the comparison of this outcome to a self-set goal. This goal is proposed to provide internal motivation by acting as the reference point for the agent who possesses reference-dependent preferences. The considered economic setting of the problem is a continuous-time, infinite-horizon optimal stopping problem, which includes an option value of waiting due to uncertainty. Under the above setting, it is shown that, even with the simplest kind of preferences, the agent can become more patient. The problem is studied in the case of full commitment when i.e. the agent's goal is fully constrained to satisfy rational expectations and partial commitment when i.e. the agent's goal does not need to fully satisfy rational expectations. In both cases, it is shown that an appropriate degree of reference dependence allows the agent to achieve an ex-ante optimum by counteracting the tendency to stop too early due to present-biasedness.
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