Doing It Now or Later
AbstractThough 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 InfoPaper provided by University of California at Berkeley in its series Economics Working Papers with number 97-253.
Date of creation: 01 Jan 1997
Date of revision:
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Postal: University of California at Berkeley, Berkeley, CA USA
Web page: http://www.haas.berkeley.edu/groups/iber/wps/econwp.html
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Other versions of this item:
- O'Donoghue, Ted & Rabin, Matthew, 1997. "Doing It Now or Later," Department of Economics, Working Paper Series qt7t44m5b0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Ted O'Donoghue & Matthew Rabin, 1996. "Doing It Now or Later," Discussion Papers 1172, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
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