Work

Why Don't Present-Biased Agents Make Commitments?

Year: 2015

Type: article

Abstract: Present-biased preferences engender a demand for commitment. Commitment is a problematic prediction, since we see so little of it. I quantitatively explore the reasons for the “missing” commitment. Extending the procrastination model in Carroll et al. (2009), I show how equilibrium commitment is related to (i) the standard deviation of the opportunity cost of time, (ii) the cost of delay, (iii) the degree of partial naivete, and (iv) the direct cost of commitment. The calibrated model demonstrates that the perceived benefits of commitment are often overwhelmed by the costs of commitment. Demand for commitment is a special case rather than the general case.

Source: American Economic Review

DOI: 10.1257/aer.p20151084

Author: David Laibson

Institution: Harvard University

Language: English

Topic: Decision-Making and Behavioral Economics

Subfield: General Decision Sciences

Field: Decision Sciences

Domain: Social Sciences

Open Access status: green

Funder: National Institute on Aging

Awards: Accumulation and Decumulation in Retirement Savings Plans, Understanding and Improving Healthcare Decision-Making and Outcomes for People Living with Alzheimer's Disease and Related Dementias