Disappointment, Risk Aversion and Dynamic Depletion of Self-Control
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.