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219B Econ Psychology and Economics: Applications (Lecture 3) Stefano DellaVigna February 4, 2009 Outline 1. Investment Goods: Exercise 2. Leisure Goods: Credit Card Borrowing 3. Leisure Goods: Consumption and Savings I (Life-cycle) 4. Leisure Goods: Consumption and Savings II (Commitments) 5. Methodology: Errors in Applying Present-Biased Preferences 1 Investment Goods: Exercise DellaVigna, Malmendier,...
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219B Econ Psychology and Economics: Applications (Lecture 3)
Stefano DellaVigna
February 4, 2009
Outline
1. Investment Goods: Exercise
2. Leisure Goods: Credit Card Borrowing
3. Leisure Goods: Consumption and Savings I (Life-cycle)
4. Leisure Goods: Consumption and Savings II (Commitments)
5. Methodology: Errors in Applying Present-Biased Preferences
1
Investment Goods: Exercise
DellaVigna, Malmendier, Paying Not To Go To The Gym, American Economic Review
Exercise as an investment good Present-Bias: Temptation not to attend
Choice of at-rate vs. per-visit contract Contractual elements: Per visit fee p, Lump-sum periodic fee L Menu of contracts Flat-rate contract: L > 0, p = 0 Pay-per-visit contract: L = 0, p > 0 Health club attendance Immediate cost ct Delayed health benet h > 0 Uncertainty: ct G, ct i.i.d. t.
Attendance decision. Long-run plans at time 0: Attend at t t(p ct + h) > 0 ct < h p. Actual attendance decision at t 1: Attend at t p ct + h > 0 ct < h p. (Time Incons.) Actual P (attend) = G(h p) Forecast at t = 0 of attendance at t 1: Attend at t p ct + h > 0 ct < h p. (Naivet) Forecasted P (attend) = G(h p)
Choice of contracts at enrollment Proposition 1. If an agent chooses the at-rate contract over the pay-per-visit contract, then a (T ) L pT G(h) + (1 )bT G(h) G(h p) + pT G(h) G(h)
Intuition: 1. Exponentials ( = = 1) pay at most p per expected visit. 2. Hyperbolic agents may...
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Berkeley - E - 219
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Berkeley - E - 219
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