The higher our aspirations, the higher the probability that we have to adjust them downwards when forming more realistic expectations later on. This paper shows that the costs induced by high aspirations are not trivial. We first develop a theoretical framework to identify the factors that determine the effect of aspirations on expected utility. Then we present evidence from a lab experiment on...

We fully characterize the preference relations that can be represented by a utility. Representation is equivalent to the condition that preferences do not have too many \jumps". A characterization of preferences that can be represented by a continuous utility follows trivially from our non-topological characterization. Res umen Se caracterizan las relaciones de preferencias que se pueden repres...

This paper provides an effi cient way to generate a set of random choices on a set of budgets which satisfy the Generalised Axiom of Revealed Preferences (GARP), that is, they are consistent with utility maximisation. The choices are drawn from an approximate uniform distribution on the admissible region on each budget which ensures consistency with GARP, based on a Markovian Monte Carlo algori...

The literature on self-control problems has typically concentrated on immediate temptations. This paper studies a Gul and Pesendorfer [13, 14] style model in which decision-makers are a¤ected by temptations that lie in the future. While temptation is commonly understood to give rise to a demand for commitment, it is shown that ‘temptation by future consumption’can induce its absence. The model ...

The classical Ellsberg experiment presents individuals with a choice problem in which the probability of winning a prize is unknown (ambiguous). In this paper we study how individuals make choices between gambles in which the ambiguity is in di↵erent dimensions: the winning probability, the amount of the prize and the payment date, and many combinations. While the decision-theoretic models acco...

People often consume non-durable goods in a way that seems inconsistent with preferences for smoothing consumption over time. We suggest that such patterns of consumption can be better explained if one takes into account the future utility flows generated by memorable consumption goods—goods, such as a honeymoon or a vacation, whose utility flow outlives their physical consumption. We consider ...

I propose an intertemporal precautionary saving model in which the agent’s labor income is subject to (possibly correlated) shocks with different degrees of persistence and volatility. However, he only observes his total income, not individual components. I show that partial observability of individual components of income gives rise to additional precautionary saving due to estimation risk, th...

This paper models behavior when a decision maker cares about and manages her self-image. In addition to having preferences over material outcomes, the agent derives “ego utility” from positive views about her ability to do well in a skill-sensitive, “ambitious,” task. Although she uses Bayes’ rule to update beliefs, she tends to become overconfident regarding which task is appropriate for her. ...

Can a generation’s discounting of future generations’ consumption utilities be interpreted as “pure” altruism towards future generations, that is, a concern that these are better off according to their likewise forward-looking preferences? It turns out that the answer is positive for many but not all discount functions used in the economics literature. In particular, traditional exponential dis...

It is routine to demonstrate in the exchange economy framework that small changes of individual preferences and endowments always result in small changes of the derived excess demand functions as one should expect. Though being as desirable for reasons of the consistency of the whole approach, however, a precise proof of the converse direction so far is still open to question. The present paper...