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Intertemporal decision making with present biased preferences

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  • Akin, Zafer

Abstract

I study the behavior of individuals with present biased preferences who are involved in costly, long-run projects. By using generic cost and reward functions, I characterize the behaviors of the sophisticated, partial naive and naive types. It is shown that there may arise cases where naives needlessly put effort on projects they never complete. Moreover, in endogenous total cost projects, the naive types always end up completing projects of lesser quality than originally intended. By introducing a bonus motive, it is shown that agents with higher self-control problems should be given a higher bonus to prevent inefficient procrastination. I, then, characterize the behavior of partially naives who potentially learn self-preferences. It is found that without learning self-preferences, partial naives behave either like sophisticates or naives depending on the level of naivete; with learning, if the learning pace is fast enough, procrastination until the deadline does not occur.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Psychology.

Volume (Year): 33 (2012)
Issue (Month): 1 ()
Pages: 30-47

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Handle: RePEc:eee:joepsy:v:33:y:2012:i:1:p:30-47

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Web page: http://www.elsevier.com/locate/joep

Related research

Keywords: Present-biased preferences; Long-run projects; Naivete; Bonus; Learning;

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  1. Wong, Wei-Kang, 2008. "How much time-inconsistency is there and does it matter? Evidence on self-awareness, size, and effects," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 645-656, December.
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Cited by:
  1. Yılmaz, Murat, 2013. "Repeated moral hazard with a time-inconsistent agent," Journal of Economic Behavior & Organization, Elsevier, vol. 95(C), pages 70-89.

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