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Doing It Now or Later

  • Ted O'Donoghue
  • Matthew Rabin

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 nave - they do not anticipate these self-control problems? Nave 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 nave, 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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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1172.

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Date of creation: Dec 1996
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Handle: RePEc:nwu:cmsems:1172
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