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 behavioral 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 the 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 #theyforesee future self-control problems # or are they naive # they do not anticipate these self-control problems? Naive people procrastinate activities with salient costs and preproperate #dotoo soon # activities with salient rewards. If costs are salient, sophistication mitigates procrastination, 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 salient costs, mild self-control problems can severely damage a person only if she is naive, while with salient rewards mild self-control problems can severely damage a person only if 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. Keywords: Doing It, Hyperbolic Discounting, Preproperation, Procrastination, Time Inconsistency. JEL Classifications: A12, B49, C70, D11, D60, D74, D91, E21 Acknowledgments: We thank Steven Bl...

This paper reports laboratory data for games that are played only once. These games span the standard categories: static and dynamic games with complete and incomplete information. For each game, the treasure is a treatment in which behavior conforms nicely to predictions of the Nash equilibrium or relevant refinement. In each case, however, a change in the payoff structure produces a large inconsistency between theoretical predictions and observed behavior. These contradictions are generally consistent with simple intuition based on the interaction of payoff asymmetries and noisy introspection about others’ decisions.

Rationality is a complex behavioral theory that can be parsed into statements about preferences, perceptions, and process. This paper looks at the evidence on rationality that is provided by behavioral experiments, and argues that most cognitive anomalies operate through errors in perception that arise from the way information is stored, retrieved, and processed, or through errors in process that lead to formulation of choice problems as cognitive tasks that are inconsistent at least with rationality narrowly defined. The paper discusses how these cognitive anomalies influence economic behavior and measurement, and their implications for economic analysis.

We present evidence from questionnaire studies of mutual fund investors about recollections of past fund performance. We find that investor memories exhibit a positive bias, consistent with current psychological models. We find that the degree of bias is conditional upon previous investor choice, a phenomenon related to the well known theory of cognitive dissonance.

We propose a model of consumption and saving based on Kahneman and Tversky's Prospect Theory that implies a fundamental asymmetry in consumption behavior inconsistent with other models of consumption. When there is sufficient income uncertainty, a person resists lowering consumption in response to bad news about future income. This resistance is greater than the resistance to increasing consumption in response to good news. We present empirical evidence from

There has been significant interest in indirect measures of attitudes like the lmplicit Association Test (IAT), presumably because of the possibility of uncovering implicit prejudices. The authors derived a set of qualitative predictions for people's performance in the IAT on the basis of random walk models. These were supported in 3 experiments comparing clearly positive or negative categories to nonwords. They also provided evidence that participants shift their response criterion when doing the IAT. Because of these criterion shifts, a response panem in the IAT can have multiple causes. Thus, it is not possible to infer a single cause (such as prejudice) from IAT results. A surprising additional result was that nonwords were treated a. though they were evaluated more negatively than obviously negative items like insects, suggesting that low familiarity items may generate the pattern of data previously interpreted as evidence for implicit prejudice. What do you think of flowers? Would you evaluate them pos-itively? If so, what do you think of Larnists? Do you think a Larnist is more negative or more positive than a flower? As you may have realized, a Larnist is not an English word; we made it up. Presumably, you do not have a prestored opinion of Larnists, and

to duration. (iii) Retrospective evaluations of affective episodes are strongly influenced by the affect experienced at singular moments, notably the moment at which affect was most extreme and the final moment. They show little or no sensitivity to duration. (iv) Forecasts of the long term effects of circumstances on subjective happiness tend to neglect the likelihood of adaptation, and therefore to exaggerate long-term benefits and costs of life changes. All four findings involve the evaluation of an outcome that extends over some time: states that endure for an indefinite term [(i) and (iv)] and bounded episodes, or lives [(ii) and (iii)]. A single psychological process, called evaluation by moments, will be invoked here to explain all four findings. Evaluation by moments works as follows: when an evaluative summary of a temporally extended outcome is required, a representative moment that stands for the entire outcome is selected or constructed; the temporally extended outcome is

The compromise effect denotes the finding that brands gain share when they become the intermediate rather than an extreme option in a choice set (Simonson 1989). Despite the robustness and importance of this phenomenon, choice modelers have neglected to incorporate the compromise effect within formal choice models and to test whether such models outperform the standard value maximization model. In this article, we suggest four context-dependent choice models that can conceptually capture the compromise effect. Although these models are motivated by theory from economics and behavioral decision research, they differ with respect to the particular mechanism that underlies the compromise effect (e.g., contextual concavity vs. loss aversion). Using two empirical applications, we (1) contrast the alternative models and show that incorporating the compromise effect by modeling the local choice context leads to superior predictions and fit relative to the traditional value maximization model and a stronger (naïve) model that adjusts for possible biases in utility measurement; (2) generalize the compromise effect by demonstrating that it systematically affects choice in larger sets of products and attributes than previously shown; (3) show the theoretical and empirical equivalence of loss aversion and local

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People have self-control problems: We pursue immediate gratification in a way that we ourselves do not appreciate in the long run. Only recently have economists begun to focus on the behavioral and welfare implications of such time-inconsistent preferences. In this paper, we outline a simple formal model of selfcontrol problems, apply this model to some specific economic applications, and discuss some general lessons and open questions in the economic analysis of immediate gratification. We argue that the economic implications of self-control problems depend on the timing of the rewards and costs of an activity, as well as a person's awareness of future self-control problems. We identify situations where knowing about self-control problems can help a person and situations where it can hurt her, and also identify situations where even mild self-control problems can severely damage a person. In the process, we describe some specific implications of self-control problems for addiction, incentive theory, and consumer choice and marketing.