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Pennsylvania Convention Center, 201-B
Hosted By:
American Economic Association
unbiased simulations and combining those signals with priors to form posteriors. These posterior
expectations exhibit as-if discounting: agents make choices as if they were maximizing a stream
of known utils weighted by a discount function, D(t). This as-if discount function reflects the fact
that estimated utils are a combination of signals and priors, so average expectations are optimally
shaded toward the mean of the prior distribution, generating behavior that partially mimics the
properties of classical time preferences. When the simulation noise has variance that is linear in
the event's horizon, the as-if discount function is hyperbolic, D(t)=1/(1+at). Our agents exhibit
systematic preference reversals, but have no taste for commitment because they suffer from
imperfect foresight, which is not a self-control problem. In our framework, agents that are more
skilled at forecasting (e.g., those with more intelligence) exhibit less discounting. Agents with
more domain-relevant experience exhibit less discounting. Older agents exhibit less discounting
(except those with cognitive decline). Agents who are encouraged to spend more time thinking
about an intertemporal tradeoff exhibit less discounting. Agents who are unable to think carefully
about an intertemporal tradeoff – e.g., due to cognitive load – exhibit more discounting. In our
framework, patience is highly unstable, fluctuating with the accuracy of forecasting
The Demand for Commitment Devices
Paper Session
Saturday, Jan. 6, 2018 10:15 AM - 12:15 PM
- Chair: Douglas Bernheim, Stanford University
Myopia and Discounting
Abstract
We assume that perfectly patient agents estimate the value of future events by generating noisy,unbiased simulations and combining those signals with priors to form posteriors. These posterior
expectations exhibit as-if discounting: agents make choices as if they were maximizing a stream
of known utils weighted by a discount function, D(t). This as-if discount function reflects the fact
that estimated utils are a combination of signals and priors, so average expectations are optimally
shaded toward the mean of the prior distribution, generating behavior that partially mimics the
properties of classical time preferences. When the simulation noise has variance that is linear in
the event's horizon, the as-if discount function is hyperbolic, D(t)=1/(1+at). Our agents exhibit
systematic preference reversals, but have no taste for commitment because they suffer from
imperfect foresight, which is not a self-control problem. In our framework, agents that are more
skilled at forecasting (e.g., those with more intelligence) exhibit less discounting. Agents with
more domain-relevant experience exhibit less discounting. Older agents exhibit less discounting
(except those with cognitive decline). Agents who are encouraged to spend more time thinking
about an intertemporal tradeoff exhibit less discounting. Agents who are unable to think carefully
about an intertemporal tradeoff – e.g., due to cognitive load – exhibit more discounting. In our
framework, patience is highly unstable, fluctuating with the accuracy of forecasting
Impulsive Consumption and Financial Wellbeing: Evidence From an Expansion in the Supply of Alcohol
Abstract
Increasing the supply of temptation goods might harm individuals if they have time-inconsistent preferences and consume more of these goods in the present at the expense of their future consumption plan. We test this hypothesis by studying the credit behavior of low-income Swedish households around the expansion of the opening hours of retail liquor stores in some counties. Consistent with the theory, the expansion in opening hours led to an increase in the take-up rate and balances of consumer credit (mainstream and pawn credit). Furthermore, default rate increased in treated populations. Thus, our results show that inconsistent-time preferences reinforce the conditions of poverty through borrowing and default.Spatial Commitment Devices and Addictive Goods: Evidence from the Removal of Slot Machines from Bars
Abstract
Commitment device theory suggests that temptations to consume addictive goods could be reduced by the regulatory removal of geographically close environmental cues. We provide new evidence on this hypothesis using a quasi-natural experiment, in which gambling regulators removed slot machines from some, but not all, neighborhood bars. We find that the removal of slot machines reduced personal bankruptcies of close neighbors (within 100 meters) but not neighbors slightly farther away. This is consistent with the removal of neighborhood slots serving as an effective spatial commitment device, which reduced close neighbors' temptation to gamble, thus allowing them to avoid bankruptcy.Discussant(s)
Emily Breza
,
Harvard University
Frank Schilbach
,
Massachusetts Institute of Technology
Bruce Carlin
,
University of California-Los Angeles
Brigitte Madrian
,
Harvard University
JEL Classifications
- D3 - Distribution
- D1 - Household Behavior and Family Economics