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Doing It Now or Later

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  • Ted O'Donoghue and Matthew Rabin .

Abstract

Though economists assume that intertemporal preferences are time-consistent, evidence suggests that a person's relative preference for well-being at an earlier moment over a later moment increases as the earlier moment gets closer. We explore the beh avioral and welfare implications of such time-inconsistent preferences in a simple model where a person must engage in an activity exactly once during some duration. We focus on two sets of distinctions. First, do choices involve salient costs - where t he costs of an action are immediate but any rewards are delayed - or do they involve salient rewards - where the rewards of an action are immediate but any costs are delayed? Second, are people sophisticated - they foresee future self-control problems - o r are the na�ve - they do not anticipate these self-control problems? Na�ve people procrastinate activities with salient costs and preproperate - do too soon - activities with salient rewards. If costs are salient, sophistication mitigates procrastinati on, and can even lead sophisticated people to do the activity sooner than if they had no self-control problem. If rewards are salient, sophistication exacerbates preproperation. These behavioral results have corresponding welfare implications: With sali ent costs, mild self-control problems can severely damage a person only if she is na�ve, while with salient rewards mild self-control problems can severely damage a person only is she is sophisticated. We also consider a multiple-activity version of the model and discuss how our results might apply to savings, addiction, and other behaviors.

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Bibliographic Info

Paper provided by University of California at Berkeley in its series Economics Working Papers with number 97-253.

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Date of creation: 01 Jan 1997
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Handle: RePEc:ucb:calbwp:97-253

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References

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  1. Gary S.Grossman Becker & Michael Murphy & Kevin M., 1991. "Rational Addiction and the Effect of Price on Consumption," University of Chicago - George G. Stigler Center for Study of Economy and State 68, Chicago - Center for Study of Economy and State.
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  1. When will Ronaldo dive? Insights from behavioural economics
    by Ronan Lyons in Ronan Lyons on 2010-06-22 06:00:09
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