Abstract
Over time, our actions shape our habits and even our characters. I introduce this psychological trait into a model of economic decisionmaking: how agents allocate resources across time determines how tempting they find present consumption over future consumption. Minor differences between agents can trap them in divergent paths of virtue or vice as a consequence of two conflicting incentives: the self-improvement effect, the desire to have ‘better' preferences, and the burn-out effect, the temptation to overconsume immediately due to the increased indifference to future costs induced by myopic decisions. Agents may thus have multiple locally optimal equilibria, and preference endogeneity can explain why some agents attempt to resist temptation, while others indulge in it and eventually burn out their available resources. These findings have important implications for explaining and designing policy around consumer behaviour, particularly long-run behaviours such as obesity, educational achievement, and saving.
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