December 13th 2021

Check out that pic #4

Willpower and Personal Rules by Tirole and Benabou

Traditionally, in economics we think that you choose according to who you are. I personally don’t like menthol, so I don’t buy much chewing gum. A fascinating article proposes that it may be the other way around: what you do makes who you are.

Nobel price winner Jean Tirole and co-author Roland Benabou propose a theoretical model about inter-temporal decisions. These are situations where your choices determines your well-being in the future, like saving for retirement, physical exercise, studying at the MCI etc. It’s a bit technical, but the figure below shows the simplified situation the authors have in mind. In the beginning, you can take an action to either attempt to exert willpower (for example, start your studies) or you can leave it aside altogether. Crucially, it is possible to give up at some point during this process or you can persevere until the end. Note, that all these actions will lead to different payoffs. The payoff for not even attempting to exert willpower is lowest here. Persevering until the end instead of giving up yields the highest payoff (B>b), but also requires effort (modeled by cost c>0). Now the main question of the article is: who perseveres in the face of adversity and why?

In a traditional economic model, the answer would be comparatively simple. Since I incur the cost of persevering now and receive the added benefits of doing so later, only the most patient will persevere. But here the crucial assumption of the article comes into play: the authors argue that although such tendencies may exist, we do not know ourselves perfectly. I do not know whether I would be able to make it through a program of multiple years of studying until I find myself in the situation. The only way to know about myself, such as whether I am generally a patient person or not, is to infer it from my own actions in the past.

This simple change in perspective allows a surprisingly rich set of predictions. It may be that I am a relatively impatient person. Would I know about myself perfectly, then I should not attempt self-control. As I do not know myself, however, I might attempt self-control in the beginning which, in turn, convinces me that I am a relatively patient person, giving me confidence to persevere and factually achieve the highest payoff. Strangely, as my willpower developed an own dynamic, my trust in myself was justified even in hindsight, even though it was not in line with my “true self”. In other, admittedly somewhat pathetic words, I have forged my own destiny.

Benabou and Tirole (2004) provide a wealth of interesting further insights. Rigid extrinsic rules in the past, such as overly strict parenting, can prevent the formation of good character traits. Overly strong focus of such character formation by choice can lead to obsessive and detrimental outcomes, maybe akin to workaholism.

Although theoretical, it is an intriguing read which I can highly recommend. You can find the link to the full article on the right (subscription required).


Written by: Moritz Mosenhauer, PhD