O'Donoghue and Rabin - Doing it Now or Later Flashcards
(22 cards)
What are the two key distinctions explored in O’Donoghue and Rabin’s model?
1) Whether choices involve immediate costs (with delayed rewards) or immediate rewards (with delayed costs)
2) Whether people are sophisticated (forsee self-control problems) or naive (don’t forsee them)
What are (β, δ)-preferences (quasi-hyperbolic discounting)?
β = present-bias parameter (β < 1 implies more weight to the present period). Note when β = 1, it becomes exponential discounting
δ = standard long-run discount factor
What is the key difference between sophisticated and naïve people in the model?
Sophisticated people know exactly what their future selves’ preferences will be
Naïve people assume their future selves’ preferences will be identical to their current selfs
What is a perception-perfect strategy?
A strategy where an agent chooses the optimal action given their current preferences and their perception of future behavior
What happens in the immediate costs, delayed benefits scenario with naïve preferences?
The naïve person keeps procrastinating, planning each period to do it the next period, ultimately doing it in the last period when they must.
What happens in the immediate costs, delayed benefits scenario with sophisticated preferences?
The sophisticated person works backward, realizes procrastination will lead to higher costs later, and chooses to do it in period 2 (procrastinating just once from period 1).
What happens in the immediate benefits, delayed costs scenario with time-consistent preferences?
They simply choose the period with the greatest utility, weighing all periods at once.
What happens in the immediate benefits, delayed costs scenario with naïve preferences?
They delay the benefit until period 3 (but not period 4) as their discount function moves with them through time.
What happens in the immediate benefits, delayed costs scenario with sophisticated preferences?
They solve the problem through backward induction, realizing their future behavior, and choose to take the benefit earlier than optimal.
What is the sophistication effect for immediate costs?
Sophistication mitigates the tendency to procrastinate (doing the activity sooner than a naïve person).
What is the sophistication effect for immediate rewards?
Sophistication exacerbates the tendency to preproperate (taking rewards sooner than optimal).
When costs are immediate, which is better - sophisticated or naïve beliefs?
Sophisticated beliefs are always better because they prevent repeated procrastination.
When rewards are immediate, which is better - sophisticated or naïve beliefs?
It’s ambiguous - naïve beliefs can sometimes be better because sophistication can lead to more severe preproperation, but sophisticates can avoid “temptation traps”.
How can self-control problems be compounded for sophisticates with immediate benefits?
Due to “unwinding” - knowing they will preproperate in the future makes them preproperate even earlier, compounding welfare losses.
How do naïfs behave in an addiction model according to this framework?
Naïfs will over-indulge because addictive activities involve yielding to immediate desires with future costs.
How do naïfs behave in a savings model according to this framework?
Naïfs will under-save because consuming now yields immediate payoffs while increased future payoffs from savings are delayed.
What is a key limitation of the paper’s approach?
It focuses on two extreme ends of the spectrum (naïve and sophisticated), when in reality, people might be partially sophisticated - aware of future present-bias but underestimating its extent.
How might sophisticates behave in ways that contradict having present-biased preferences?
They may complete unpleasant tasks earlier than time-consistent individuals or consume tempting goods later as a means of self-control.
What is a criticism levelled at this paper as it relates to domains?
It lacks domain specificity as there might be instances where sophistication may have positive welfare implications, and instances where it might not.
Is beta fixed and if so, what are the implications here?
The model treats beta as if it is fixed, rather than allowing it to evolve with experience.
Lowenstein argues that self control improves with practice, and this dynamic is notably absent from this model.
What is a criticism that can be levelled at this paper regarding welfare analysis?
There is an ambiguity about which “self” (present or future) should be prioritised when making welfare judgements, complicating policy implications.
What is Cerrone’s (2020) critique of O’Donoghue and Rabin’s framework?
They argue that the framework does not consider social influences or strategic interactions, which can play a crucial role in real-world procrastination. For example, people may procrastinate differently when others are involved or when social norms are present.
