Abstract
Individuals regularly indulge in internal ‘deal-making’ when justifying decisions they know to be bad. In the case of unhealthy foods, the justification often takes the form: “It’s ok if I overindulge today, because I will eat well starting from tomorrow.” This (soft) commitment to restrict future eating is usually reneged on once the future arrives, and the individual continues to overconsume unhealthy foods.
Standard choice theory states that individuals always make optimal choices, and therefore does not allow for the existence of these internal deals. Commonly used behavioural models account for the difference between optimal and observed choices in different ways, for example through ‘present bias’, limited attention, or through ‘cue-triggered’ decisions. To date, no model has incorporated internal deals as a cause of sub-optimal consumption choices.
This dissertation provides a critical synthesis of the literature on behavioural economic modelling, with a focus on the consequences of unhealthy food choices, and presents a model of internal deal-making as an alternative to the existing rational-choice and behavioural models of utility maximisation. The individual uses a soft commitment with the dual aims of satisfying cravings and achieving good health outcomes on average, but the inability to stick to this commitment lowers life-time utility. Choices and utility differ between naïve and sophisticated consumers.
The welfare impacts, key assumptions, and policy implications of the model are analysed and compared to existing models.
