Mood-driven Choices and Self-regulation

We model a decision maker who can exert costly effort to regulate her own moods, thereby reducing internal conflict between her normative objectives and her mood-driven choices. We provide an axiomatic characterization of the model in a menu-choice framework, and show how costs of self-regulation can be elicited and compared across individuals. A key feature of our model is that the decision maker can respond to incentives when deciding how much effort to exert in regulating her moods. This leads to systematic violations of an independence condition that is satisfied by many prominent models of internal conflict, such as the self-control and the dual-self models. In a consumption-savings problem, we show that incentivized self-regulation efforts generate novel income effects when the decision maker can regulate her impatience. These income effects have important implications for public policies aimed at encouraging savings behavior.