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The Economics of Instant Gratification

The Economics of Instant Gratification. NIH Behavior Change Conference David Laibson Harvard University and NBER June 15-16, 2009 Bethesda, Maryland. Basic model of time preferences: Quasi-hyperbolic discounting. Present gets full weight Future gets weight β ~ 1/2.

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The Economics of Instant Gratification

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  1. The Economics of Instant Gratification NIH Behavior Change Conference David Laibson Harvard University and NBER June 15-16, 2009 Bethesda, Maryland

  2. Basic model of time preferences:Quasi-hyperbolic discounting • Present gets full weight • Future gets weight β ~ 1/2 Strotz (1957), Herrnstein (1966), Phelps and Pollak (1968), Laibson (1997)

  3. Application:Exercise • Suppose exercise generates 6 units of immediate cost • Suppose exercise generates 8 units of delayed benefits • Will you exercise? • Exercise Today: -6 + ½ [8] = -2 • Exercise Tomorrow: 0 + ½ [-6 + 8] = +1 • Agent would like to relax today and exercise tomorrow. • Agent won’t follow through without commitment.

  4. Key ideas • Immediate costs/benefits have disproportionate weight • Consequently, people tend to avoid and/or delay investment behaviors • Human capital formation (education) • Exercise • Diet • Sexual abstinence • Smoking abstinence • Medical Adherence • Saving

  5. Three interventions in savingsPilot interventions in health

  6. Automatic Enrollment Automatic enrollment Standard enrollment Madrian and Shea (2001), Choi, Laibson, Madrian, Metrick (2004)

  7. Active Decisions and Deadlines Active Decision Cohort Standard enrollment cohort Carroll, Choi, Laibson, Madrian, Metrick (2004)

  8. Simplified enrollment 2005 2004 2003 Beshears, Choi, Laibson, Madrian (2006)

  9. Extensions to health domain • Default appointments (e.g. colonoscopy) • Default nutrition (e.g. workplace cafeteria, vending) • Default & active decision immunization (e.g. flu shots) • Active decisions for good health behaviors (e.g. HD of chronic medications) • Default medical procedures (e.g. diabetics: stents vs. drugs)

  10. Neural mechanisms Stay on your diet (analytic cortex) I want a donut (meso-limbic dopamine) McClure, Laibson, Loewenstein, Cohen (2004) McClure, Ericson, Laibson, Loewenstein, Cohen (2007) Hare, Camerer, Rangel (2009)

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