Bounded self-control | Topics | tutor2u Economics

This concept is closely linked to that of bounded rationality. Rationally, and according to neoclassical economic theory, consumers know when the price of a good/service exceeds the marginal utility they gain from consuming that good/service – in this rational world of homo economicus, consumers stop consuming. In reality, though, there is plenty of evidence to suggest that consumers often do not stop consuming even when it makes sense to stop – think about over-eating, excessive investment in a particular stock or share and so on. Many behavioural scientists link bounded self-control to the concept of hyperbolic discounting i.e. valuing the present much more than the future, and making decisions that their “future self” would not like. This can help to explain, for example, people’s inability to save effectively for retirement.

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