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Identifying What is tempting

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  • Alexander Groves

Abstract

An individual with present bias is one who is particularly impatient for consumption now at the expense of consumption later, but less impatient between any two dates in the future. A hypothesis for the cause of present bias is that immediate consumption is subject to temptation, whereas future consumption is not. Under this hypothesis an individual's level of present bias is a combination of what she is tempted to do and the amount of self-control she uses to avoid succumbing to this temptation. I show that given a level of present bias what is tempting and how much self-control is used is not always identified: it could be that she is tempted to consume everything she has available right now, but she controls herself; that her temptation is more mild and she succumbs to it completely; or something in between. I then present an algorithm that is able to disentangle this combination by eliciting the maximum price she will pay for commitment and her present bias. This works because for a given level of present-bias commitment becomes more valuable as the effort required to control one's self increases.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series Working Papers ECARES with number 2013-41.

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Date of creation: Nov 2013
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Handle: RePEc:eca:wpaper:2013/151200

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