Adam Smith Business School

Dr Agustin Troccoli-Moretti, Universitat Pompeu Fabra (UPF) and Barcelona School of Economics (BSE)

"Disappointment, Risk Aversion and Dynamic Depletion of Self-Control"
Tuesday, 29 October 2024. 16:00-17:30
Room 133, Hetherington Building

Abstract

Research in psychology and neuroscience provides compelling evidence that negative emotions hinder individuals’ ability to exert self-control. Similarly, a growing body of empirical research in economics suggests that poverty can induce negative emotional states, which generate behaviours that perpetuate it. This paper introduces a history-dependent model of dynamic choice in which the decision maker experiences more stringent internal conflicts when emotionally distressed, but who is otherwise a completely standard economic agent. From a decision-theoretic perspective, the way we incorporate emotions necessitates relaxing the von Neumann-Morgenstern independence axiom and introducing revised versions of classical axioms of dynamic choice. In terms of choice behaviour, our agent doesn’t only dislike risk by her pure risk aversion, but also because it can deplete her self-control in subsequent choices. This will lead agents to avoid temptations dynamically: even when not tempted, they will like to abstain from contingencies that cause emotional distress, and hence normatively inferior future choices. Similarly, our agent’s risk attitude will depend on the availability of future temptations, and we identify a disappointment premium that individuals will demand to accept risks, which is always non-negative irrespective of the agent’s underlying intrinsic risk preference.

Bio

Agustin completed his PhD in Economics at the University of Warwick, under the supervision of Herakles Polemarchakis and Costas Cavounidis. Currently, he is a post-doctoral researcher at the Universitat Pompeu Fabra and the Barcelona School of Economics. His research interests lie in various areas of decision theory, with particular focus on the incorporation of emotions in axiomatic models of rational choice and in consequentialist decision theory.

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First published: 14 October 2024