This paper reports measures of preference parameters relating to risk tolerance, time preference, and intertemporal substitution. These measures are based on survey responses to hypothetical situations constructed using an economic theorist's concept of the underlying parameters. The individual measures of preference parameters display heterogeneity. Estimated risk tolerance and the elasticity of intertemporal substitution are essentially uncorrelated across individuals. Measured risk tolerance is positively related to risky behaviors, including smoking, drinking, failing to have insurance, and holding stocks rather than Treasury bills. These relationships are both statistically and quantitatively significant, although measured risk tolerance explains only a small fraction of the variation of the studied behaviors. Robert B. Barsky F. Thomas Juster Miles S. Kimball Matthew D. Shapiro Survey Research Center and Department of Economics University of Michigan Ann Arbor, MI 48109 tel. 313 ...

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...

Abstract not found

The article questions the methodology of “economics and psychology ” in its focus on the case of hyperbolic discounting. Using some experimental results, I argue that the same type of evidence, which rejects the standard constant discount utility functions, can just as easily reject hyperbolic discounting as well. Furthermore, a decision-making procedure based on similarity relations better explains the observations and is more intuitive. The article concludes that combining “economics and psychology ” requires opening the black box of decision makers instead of modifying functional forms. 1.

How do anticipated short-term costs affect the likelihood of engaging in an activity that has long-term benefits. Five studies investigated the factors that determine (a) how anticipated short-term costs elicit self-control efforts and (b) how self-control efforts eventually diminish the influence of short-term costs on behavior. The studies manipulated short-term costs (e.g., painful medical procedures) and assessed a variety of self-control strategies (e.g., self-imposed penalties for failure to undergo a test). The results show that short-term costs elicit self-control strategies for self rather than others, before rather than after behavior, when long-term benefits are important rather than unimportant and when the costs are moderate rather than extremely small or large. The results also show that the self-control efforts help people act according to their long-term interests. People sometimes know what they prefer but feel uncertain that this is what they will actually do. This uncertainty often reflects feasibility constraints such as lack of opportunity, freedom of choice, or prerequisite skills. In some cases, however, people may know that what they prefer is entirely feasible but may nevertheless suspect that when faced with the actual choice they will be tempted to do something else. A considerable amount of basic and applied research on self-control has investigated how immediate temptations prevent people from acting according to their preferences and has suggested techniques that may help people resist the

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.

People prefer to make changeable decisions rather than unchangeable decisions because they do not realize that they may be more satisfied with the latter. Photography students believed that having the opportunity to change their minds about which prints to keep would not influence their liking of the prints. However, those who had the opportunity to change their minds liked their prints less than those who did not (Study 1). Although the opportunity to change their minds impaired the postdecisional processes that normally promote satisfaction (Study 2a), most participants wanted to have that opportunity (Study 2b). The results demonstrate that errors in affective forecasting can lead people to behave in ways that do not optimize their happiness and well-being. In a minute there is time For decisions and revisions which a minute will reverse. —T. S. Eliot, Poetry (Vol. 6)

We present a theory of decision by sampling (DbS) in which, in contrast with traditional models, there are no underlying psychoeconomic scales. Instead, we assume that an attribute’s subjective value is constructed from a series of binary, ordinal comparisons to a sample of attribute values drawn from memory and is its rank within the sample. We assume that the sample reflects both the immediate distribution of attribute values from the current decision’s context and also the background, real-world distribution of attribute values. DbS accounts for concave utility functions; losses looming larger than gains; hyperbolic temporal discounting; and the overestimation of small probabilities and the underestimation of large probabilities.

This paper offers a conceptual framework which (re)integrates goal-directed control, motivational processes, and executive functions, and suggests a developmental pathway from situated action to higher level cognition. We first illustrate a basic computational (control-theoretic) model of goal-directed action that makes use of internal modeling. We then show that by adding the problem of selection among multiple action alternatives motivation enters the scene, and that the basic mechanisms of executive functions such as inhibition, the monitoring of progresses, and working memory, are required for this system to work. Further, we elaborate on the idea that the off-line reenactment of anticipatory mechanisms used for action control gives rise to (embodied) mental simulations, and propose that thinking consists essentially in controlling mental simulations rather than directly controlling behavior and perceptions. We conclude by sketching an evolutionary perspective of this process, proposing that anticipation leveraged cognition, and by highlighting specific predictions of our model.

This paper explores how the timing of career-contingent financial aid influences its effectiveness in encouraging law students to enter public interest work, and hence the isolated effect of educational debt timing on career choice. I analyze quasi-experimental data from NYU Law School's Innovative Financial Aid Study, in which careercontingent financial aid packages with equivalent net values but varying debt structures were randomly assigned to applicants. My results indicate that debt timing matters: law school graduates who receive tuition waivers rather than ex-post loan assistance have a 32% higher rate of first job placement in public interest law and a 91% higher rate of clerkships. Furthermore, recipients of tuition waivers are more likely to enroll in law school conditional on being admitted. Using propensity score methods to correct for sample selection bias at the matriculation stage, I find that differences in first job placement according to debt timing persist after controlling for differential enrollment rates, implying an independent post-enrollment influence of debt timing on career decisions. I present a behavioral model that rationalizes the time-inconsistency of career decisions when agents are both debt averse and loss averse.