on the robustness of equilibrium refinements abstract the philosophy of equilibrium refinements is that the analyst if he knows things about the structure of the game can reject some nash equilibria as unreasonable the word know in the preceding sentence deserves special emphasis if in a fixed game the analyst can reject a particular equilibrium outcome but he cannot do so for games arbitrarily close by then he may have second thoughts about rejecting the outcome we consider several notions of distance between games and we characterize their implications for the robustness of equilibrium refinements

an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

self rewards and personal motivation self administered rewards are ubiquitous they serve as incentives for personal accomplishments and are widely recommended to increase personal motivation we show that in a model with time inconsistent and reference dependent preferences self rewards can be a credible and effective tool to overcome self control problems we also discuss the different types of self rewards the individual can use such as vice goods and virtue goods and analyze which types of goods the individual prefers

can self control explain avoiding free money evidence from interest free student loans abstract this paper uses insights from behavioral economics to explain a particularly surprising borrowing phenomenon one in six undergraduate students offered interest free loans turns them down models of impulse control predict that students may optimally reject subsidized loans to avoid excessive consumption during school using the national postsecondary student aid study we investigate students take up decisions and identify a group of students for whom the loans create an especially tempting liquidity increase students who would receive the loan in cash are significantly more likely to turn it down suggesting that consumers choose to limit their liquidity in economically meaningful situations

informal commitments in planner doer games abstract this paper studies the role of informal commitments in dynamic choice under self control informal commitments in contrast to formal commitments are ad hoc personal rules of behavior that are not always observable moreover the effectiveness of these rules in constraining future choices is often dependent on the decision maker we model informal commitments using an extension of a standard planner doer model after thaler and shefrin 1981 taking a preference over menus i e formal commitments as an observable our main results show how to elicit and partially identify this model our model can explain evidence on self control behavior that cannot be represented by the gul and pesendorfer 2001 model of self control nor by any of its recent extensions

temptation and commitment in the laboratory temptation and self control in intertemporal choice environments are receiving increasing attention in the theoretical economics literature nevertheless there remains a scarcity of empirical evidence from controlled environments informing behavior under repeated temptations this is unfortunate in light of the fact that in many natural environments the same temptation must be repeatedly resisted this paper fills that gap by reporting data from a novel laboratory study of economic decisions under repeat temptations subjects are repeatedly offered an option with instantaneous benefit that also entails a substantial reduction to overall earnings we show that this option is tempting in the sense that a substantial fraction of our subjects incur pecuniary costs to eliminate the choice and thus commit to not choosing the tempting alternative we compare the timing and price elasticity of these commitment decisions to predictions from existing theoretical models of decision under temptation our data are broadly consistent with theory with the notable exception that commitment often occurs with delay rather than at the first opportunity moreover the timing of commitment is significantly impacted by the cost of the commitment device the patterns we report have direct implications for economic theory and are a first step toward designing mechanisms that promote prudent economic decisions under temptation

fettered to gold economic policy in the interwar period for at least three reasons first it is fun a skillful narrator and analyst can bring alive exciting or important events and that is enjoyable second a study of history alerts economists to two important but usually neglected characteristics of economies namely that they are sometimes strongly influenced by noneconomic factors not only wars but political impasses charismatic leaders or ideological beliefs deeply rooted in public or official psychology and that contrary to what is usually assumed in formal modeling the structure of economies changes over time as public attitudes change and as institutions evolve third economists should study history at least relatively recent history because it is usually impossible to understand our institutions and attitudes without some appreciation of the events that shaped the legacy from our parents and grandparents barry eichengreen has written a book that is likely for some time to become the standard reference on monetary and financial developments during the interwar period 1919 1936 it is traditional history telling a story or rather a series of stories with more tables and charts and a stronger reliance on economic concepts than most histories but little econometrics and no formal modeling the interwar period which contains what is still the most dramatic and traumatic economic event of the past century the great depression left a strong imprint on contemporary american european and world institutions and attitudes such as the securities and exchange commission the glass steagall act requring the separation of banking from other activities and the international monetary fund in addition to telling an interesting story eichengreen helps us interpret those events in ways that may have lessons for the future as well eichengreen s most significant conclusion is that the great depression was due to attempts to adhere to a restored gold standard with inadequate international cooperation to make it work that flawed behavior in turn must be understood in light of experience in the early 1920s especially in three critical countries france germany and the united states as the interwar period may not be well known to most readers of this journal i first sketch the main economic and political events the next section indicates the influence of these events on post world war ii international institutions and behavior i turn then to the various explanations that have been put forward for the severity of the great depression and conclude with a commentary on eichengreen s contribution to this literature and to our understanding of the interwar period more generally

thinking fast and slow some field experiments to reduce crime and dropout in chicago we present the results of three large scale randomized controlled trials rcts carried out in chicago testing interventions to reduce crime and dropout by changing the decision making of economically disadvantaged youth we study a program called becoming a man bam developed by the nonprofit youth guidance in two rcts implemented in 2009 2010 and 2013 2015 in the two studies participation in the program reduced total arrests during the intervention period by 28 35 reduced violent crime arrests by 45 50 improved school engagement and in the first study where we have follow up data increased graduation rates by 12 19 the third rct tested a program with partially overlapping components carried out in the cook county juvenile temporary detention center jtdc which reduced readmission rates to the facility by 21 these large behavioral responses combined with modest program costs imply benefit cost ratios for these interventions from 5 to 1 up to 30 to 1 or more our data on mechanisms are not ideal but we find no positive evidence that these effects are due to changes in emotional intelligence or social skills self control or grit or a generic mentoring effect we find suggestive support for the hypothesis that the programs work by helping youth slow down and reflect on whether their automatic thoughts and behaviors are well suited to the situation they are in or whether the situation could be construed differently jel codes c91 c93 d03 d1 i24 i3 i32 k42

consumption self control by rationing purchase quantities of virtue and vice consumers attempts to control their unwanted consumption impulses influence many everyday purchases with broad implications for marketers pricing policies addressing theoreticians and practitioners alike this paper uses multiple empirical methods to show that consumers voluntarily and strategically ration their purchase quantities of goods that are likely to be consumed on impulse and that therefore may pose self control problems for example many regular smokers buy their cigarettes by the pack although they could easily afford to buy 10 pack cartons these smokers knowingly forgo sizable per unit savings from quantity discounts which they could realize if they bought cartons by rationing their purchase quantities they also self impose additional transactions costs on marginal consumption which makes excessive smoking overly difficult and costly such strategic self imposition of constraints is intuitively appealing yet theoretically problematic the marketing literature lacks operationalizations and empirical tests of such consumption self control strategies and of their managerial implications this paper provides experimental evidence of the operation of consumer self control and empirically illustrates its direct implications for the pricing of consumer goods moreover the paper develops a conceptual framework for the design of empirical tests of such self imposed constraints on consumption in consumer goods markets within matched pairs of products we distinguish relative virtue and vice goods whose preference ordering changes with whet her consumers evaluate immediate or delayed consumption consequences for example ignoring long term health effects many smokers prefer regular relative vice to light relative virtue cigarettes because they prefer the taste of the former however ignoring these short term taste differences the same smokers prefer light to regular cigarettes when they consider the long term health effects of smoking these preference orders can lead to dynamically inconsistent consumption choices by consumers whose tradeoffs between the immediate and delayed consequences of consumption depend on the time lag between purchase and consumption this creates a potential self control problem because these consumers will be tempted to over consume the vices they have in stock at home purchase quantity rationing helps them solve the self control problem by limiting their stock and hence their consumption opportunities such rationing implies that per purchase occasion vice consumers will be less likely than virtue consumers to buy larger quantities in response to unit price reductions such as quantity discounts we first test this prediction in two laboratory experiments we then examine the external validity of the results at the retail level with a field survey of quantity discounts and with a scanner data analysis of chain wide store level demand across a variety of different pairs of matched vice regular and virtue reduced fat calorie or caffeine etc product categories the analyses of these experimental field and scanner data provide strong convergent evidence of a characteristic crossover in demand schedules for relative vices and virtues for categories as diverse as among others potato chips chocolate chip cookies cream cheese beer soft drinks ice cream and frozen yogurt chewing gum coffee and beef andturkey bologna vice consumers demand increases less in response to price reductions than virtue consumers demand although their preferences are not generally weaker for vices than for virtues constraints on vice purchases are self imposed and strategic rather than driven by simple preferences we suggest that rationing their vice inventories at the point of purchase allows consumers to limit subsequent consumption as a result of purchase quantity rationing however vice buyers forgo savings from price reductions through quantity discounts effectively paying price premiums for the opportunity to engage in self control thus purchase quantity rationing vice consumers are relatively price in sensitive from a managerial and public policy perspective our findings should offer marketing practitioners in many consumer goods industries new opportunities to increase profits through segmentation and price discrimination based on consumer self control they can charge premium prices for small sizes of vices relative to the corresponding quantity discounts for virtues virtue consumers on the other hand will buy larger amounts even when quantity discounts are relatively shallow a key conceptual contribution of this paper lies in showing how marketing researchers can investigate a whole class of strategic self constraining consumer behaviors empirically moreover this research is the first to extend previous theoretical work on impulse control by empirically demonstrating its broader implications for marketing decision making

the fourfold pattern of risk attitudes in choice and pricing tasks we examine the robustness of the fourfold pattern of risk attitudes under two elicitation procedures we find that individuals are on average risk seeking over low probability gains and high probability losses and risk averse over high probability gains and low probability losses when we elicit prices for the gambles however a choice based elicitation procedure where participants choose between a gamble and its expected value yields individual decisions that are indistinguishable from random choice sensitivity to elicitation procedure holds between and within participants and remains when participants are allowed to review and change decisions the price elicitation procedure is more complex this finding may be further evidence that an increase in cognitive load exacerbates behavioural anomalies

willpower and the optimal control of visceral urges common intuition and experimental psychology suggest that the ability to self regulate willpower is a depletable resource we investigate the behavior of an agent who optimally consumes a cake or paycheck or workload over time and who recognizes that restraining his consumption too much would exhaust his willpower and leave him unable to manage his consumption unlike prior models of self control a model with willpower depletion can explain the increasing consumption sequences observable in high frequency data and corresponding laboratory findings the apparent links between unrelated self control behaviors and the altered economic behavior following imposition of cognitive loads at the same time willpower depletion provides an alternative explanation for a taste for commitment intertemporal preference reversals and procrastination accounting for willpower depletion thus provides a more unified theory of time preference it also provides an explanation for anomalous intratemporal behaviors such as low correlations between health related activities

who is behavioral cognitive ability and anomalous preferences in this paper we ask whether variation in preference anomalies is related to variation in cognitive ability evidence from a new laboratory study of chilean high school students with similar schooling backgrounds shows that small stakes risk aversion and short run discounting are less common among those with higher standardized test scores the relationship with test scores survives controls for parental education and wealth we find some evidence that elementary school gpa is predictive of preferences measured at the end of high school two laboratory interventions provide suggestive evidence of a possible causal impact of cognitive resources on expressed preferences jel j24 d14 c91

risk and rationalization the role of affect and cognitive dissonance for sexual risk taking this paper analyzes the mechanisms underlying excessive sexual risk taking in the presence of hiv drawing ideas from psychology on decision making processes and risk evaluation a theoretical mode

are risk aversion and impatience related to cognitive ability is the way that people make risky choices or tradeoffs over time related to cognitive ability this paper investigates whether there is a link between cognitive ability risk aversion and impatience using a representative sample of the population and incentive compatible measures we conduct choice experiments measuring risk aversion and impatience over an annual time horizon for a randomly drawn sample of roughly 1 000 german adults subjects also take part in two different tests of cognitive ability which correspond to sub modules of one of the most widely used iq tests interviews are conducted in subjects own homes we find that lower cognitive ability is associated with greater risk aversion and more pronounced impatience these relationships are significant and robust to controlling for personal characteristics educational attainment income and measures of credit constraints we perform a series of additional robustness checks which help rule out other possible confounds

precommitments for financial self control micro evidence from the 2003 korean credit crisis we analyze high frequency micro panel data on customers of a major korean credit card company before and after the 2003 korean credit crisis and find evidence of pervasive precommitment behavior that is difficult to explain using standard economic theories 1 customers voluntarily reduce their credit card borrowing limits without any compensation 2 customers turn down interest free installment loan offers with high probability and 3 of the small fraction of customers who do accept interest free loan offers most precommit to pay off the loan over a shorter term than the maximum allowed term under the offer

addiction and cue triggered decision processes we propose a model of addiction based on three premises 1 use among addicts is frequently a mistake 2 experience sensitizes an individual to environmental cues that trigger mistaken usage 3 addicts understand and manage their susceptibilities we argue that these premises find support in evidence from psychology neuroscience and clinical practice the model is tractable and generates a plausible mapping between behavior and the characteristics of the user substance and environment it accounts for a number of important patterns associated with addiction gives rise to a clear welfare standard and has novel implications for policy

a dual self model of impulse control we propose that a simple dual self model gives a unified explanation for several empirical regularities including the apparent time inconsistency that has motivated models of quasi hyperbolic discounting and rabin s paradox of risk aversion in the large and small the model also implies that self control costs imply excess delay as in the o donoghue and rabin models of quasi hyperbolic utility and it explains experimental evidence that increased cognitive load makes temptations harder to resist the base version of our model is consistent with the gul pesendorfer axioms but we argue that these axioms must be relaxed to account for the effect of cognitive load

measuring self control problems we develop a survey instrument to measure self control problems in a sample of highly educated adults this measure relates in the manner that theory predicts to liquid wealth accumulation and personality measures yet while self control problems are typically seen as resulting in overconsumption and low wealth we identify a significant group who underconsume and thereby accumulate high levels of wealth in addition self control problems are smaller in scale for older than for younger respondents those who put money aside in retirement accounts may be delaying access to a point at which self control problems are no longer important jel d12 d14

the behavioral life cycle hypothesis self control mental accounting and framing are incorporated in a behavioral enrichment of the life cycle theory of saving called the behavioral life cycle blc hypothesis the key assumption of the blc theory is that households treat components of their wealth as nonfungible even in the absence of credit rationing specifically wealth is assumed to be divided into three mental accounts current income current assets and future income the temptation to spend is assumed to be greatest for current income and least for future income considerable empirical support for the blc theory is presented primarily drawn from published econometric studies

the market for laws an economic analysis of legislation considerable insight into the workings of government has been gained in recent years by analyzing political behavior in the same way that economists analyze market behavior such analysis has led to at least two actually several distinguishable but often overlapping developments one might be labeled the interest group theory of government 1 4 10 11 12 16 while the second could be referred to as the economic theory of legislatures 4 5 10 15 18 the purpose of the following presentation is to combine these two theoretical developments and treat the legislative process as a market for laws then by simultaneously considering interest group characteristics and legislative production costs hypotheses concerning both the level of interest group pressure and the magnitude of legislative output are examined in particular the primary issues to be addressed are 1 what determines the number of interest groups formed in a state and 2 what impact does the number of interest groups have on the level of legislative output in the process the developing economic approach to government is extended in two directions first this study contains what appears to be the first direct empirical examination of the question of what factors lead to or limit aggregate interest group demands for legislation and second the level of interest group pressure and the constraints on or costs of legislative decision making are considered to simultaneously determine the aggregate output of the legislative process virtually all previous studies of interest group legislation examine the impact of specific interests on specific legislation 2 the following presentation is divided into five sections in addition to this introduction in order to explore the issues suggested above section ii characterizes the political process as a market in order to justify the theoretical hypotheses to be tested section iii details the theoretical

neuroeconomics why economics needs brains neuroeconomics uses knowledge about brain mechanisms to inform economic theory it opens up the black box of the brain much as organizational economics opened up the theory of the firm neuroscientists use many tools including brain imaging behavior of patients with brain damage animal behavior and recording single neuron activity the key insight for economics is that the brain is composed of multiple systems which interact controlled systems executive function interrupt automatic ones brain evidence complicates standard assumptions about basic preference to include homeostasis and other kinds of state dependence and shows emotional activation in ambiguous choice and strategic interaction

a cue theory of consumption psychological experiments demonstrate that repeated pairings of a cue and a consumption good eventually create cue based complementarities the presence of the cue raises the marginal utility derived from consumption in this paper such dynamic preferences are embedded in a rational choice model behavior that arises from this model is characterized by endogenous cue sensitivities costly cue management commitment and cue based spikes in impatience the model is used to understand addictive habit forming behaviors and marketing the model explains why preferences change rapidly from moment to moment why temptations should sometimes be avoided and how firms package and position goods

why don t present biased agents make commitments since self control problems were first analyzed by strotz 1956 researchers have frequently emphasized that dynamically inconsistent preferences such as present biased preferences engender a demand for commitment 1 here and throughout this paper i define commitment as a pure restriction on one s choice set with no confounding extrinsic benefits such as tax deferral in a savings plan or intra household strategic advantages 2 commitment is a problematic prediction since we see so little of it in the economy researchers have been able to induce some experimental participants to commit themselves e g ashraf karlan and yin 2006 but across a growing literature it is usually the case that only a minority of experimental subjects choose to tie their own hands 3 moreover subjects rarely express a willingness to pay a significant price to have their choice set reduced 4 most importantly very little commitment has arisen in the marketplace without the direct involvement of behavioral economists or their students 5 in the current paper i quantitatively explore the reasons for the missing commitment extending the present biased 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 my quantitative analysis implies that commitment is not a robust implication of present biased discounting once one calibrates the model commitment vanishes in many leading cases in other words the benefits of commitment as perceived by the present biased agent are frequently overwhelmed by the costs of commitment this does not imply that we should never expect to see commitment rather in some natural settings like the one studied here commitment is a hothouse flower that survives only under special parameterizations a demand for commitment is a special case rather than the general case section i explains the basic model with sophisticated beliefs and solves it under the assumption that commitment is not available section ii introduces a free commitment technology and characterizes the cases under which commitment will be chosen section iii extends that analysis under the assumption of partial naivete section iv completes the analysis by studying the case in which commitment has a direct cost i e a hassle cost or a market price for setting up a commitment contract section v concludes an associated nber working paper contains proofs

discounting behavior a reconsideration we re evaluate the theory experimental design and econometrics behind claims that individuals exhibit non constant discounting behavior theory points to the importance of controlling for the non linearity of the utility function of individuals since the discount rate is defined over time dated utility flows and not flows of money it also points to a menagerie of functional forms to characterize different types of non constant discounting behavior the implied experimental design calls for individuals to undertake several tasks to allow us to identify these models and to several treatments such as multiple horizons and the effect of allowing for a front end delay on earlier payments the implied econometrics calls for structural estimation of the theoretical models allowing for joint estimation of utility functions and discounting functions using data collected from a representative sample of 413 adult danes in 2009 we draw striking conclusions assuming an exponential discounting model we estimate discount rates to be 5 6 on average this is significantly lower than all previous estimates using controlled experiments we also find no evidence to support quasi hyperbolic discounting or fixed cost discounting and only modest evidence to support other specifications of non constant discounting furthermore the evidence for non constant discounting while statistically significant is not economically significant in terms of the size of the estimated discount rates we undertake extensive robustness checks on these findings including a detailed review of the previous comparable literature

consumption savings decisions with quasi geometric discounting we study the consumption savings problem of an infinitely lived rational consumer who has time inconsistent preferences in the form of quasi geometric discounting the consumer operates a weakly concave production function and must simply divide current resources into current consumption and savings there is no uncertainty a solution to the consumer s problem is a subgame perfect equilibrium of a dynamic game between the consumer s successive selves we show that this game has a continuum of equilibria in stationary markov strategies not only is the stationary point of the consumer s asset holdings indeterminate but each stationary point has a continuum of dynamic paths converging to it the savings policy rules underlying these dynamic paths are step functions

dynamic inconsistency and self control a planner doer interpretation we show that gul and pesendorfer s econometrica 69 2001 1403 representation result for preferences with temptation and self control can be reexpressed in terms of a costly intrapersonal conflict between a planner and doer as in thaler and shefrin j political econ 89 1981 392 and psychologists standard view of self control problems

choice and procrastination author s o donoghue ted rabin matthew abstract recent models of procrastination due to self control problems assume that a procrastinator considers just one option and is unaware of her self control problems we develop a model where a person chooses from a menu of options and is partially aware of her self control problems this menu model replicates earlier results and generates new ones a person might forego completing an attractive option because she plans to complete a more attractive but never to be completed option hence providing a non procrastinator additional options can induce procrastination and a person may procrastinate worse pursuing important goals than unimportant ones

judging experimental evidence on dynamic inconsistency abstract this article briefly summarizes and judges recent experimental developments exploring the predictions of dynamically inconsistent models an opinion is provided as to how the literature ma

self control financial literacy the co holding puzzle we use uk survey data to analyze the puzzling co existence of high cost revolving consumer credit alongside low yield liquid savings in household balance sheets which we name the co holding puzzle approximately 12 of households in our sample co hold on average 3800 of revolving consumer credit on which they incur interest charges even though they could immediately pay down all this debt using their liquid assets co holders are typically more financially literate with above average income and education in most estimates co holding is also associated with impulsive spending behavior on the part of the household our results provide empirical support to theoretical models in which households co hold as a means of managing self control problems

decreasing impatience a criterion for non stationary time preference and hyperbolic discounting despite recent interest in hyperbolic discounting there has been little discussion of exactly what property of time preferences is instantiated by hyperbolic or quasi hyperbolic functional forms the paper revives an earlier proposal in prelec 1989 that the key property is prattarrow convexity of the log of the discount function which corresponds to decreasing impatience di at the level of preferences di provides a natural criterion for assessing the severity of departure from stationarity in that greater di is equivalent to more choices of dominated options in two stage decision problems as well as greater convexity of the log of the discount function inefficient choices may arise as intentional precommitments or as unintended reversals of preference by naive agents

self control and the theory of consumption to study the behavior of agents who are susceptible to temptation in infinite horizon consumption problems under uncertainty we define and characterize dynamic self control dsc preferences dsc preferences are recursive and separable in economies with dsc agents equilibria exist but may be inefficient in such equilibria steady state consumption is independent of initial endowments and increases in self control increasing the preference for commitment while keeping self control constant increases the equity premium removing nonbinding constraints changes equilibrium allocations and prices debt contracts can be sustained even if the only feasible punishment for default is the termination of the contract

the brain as a hierarchical organization based on recent neuroscience evidence we model the brain as a dual system organization subject to three conflicts asymmetric information temporal hori zon and incentive salience under the first and second conflicts we show that the uninformed system imposes a positive link between consumption and labor at every period furthermore decreasing impatience endogenously emerges as a consequence of these two conflicts under the first and third conflicts it becomes optimal to set a consumption cap finally we discuss the behavioral implications of these rules for choice bracketing and expense tracking and for consumption over the life cycle jel dil d74 d82 d87 d91

commitment savings in informal banking markets abstract i study the provision of commitment savings by informal banks to sophisticated hyperbolic discounters since a consumer is subject to temptation in the period that he signs a contract banks might exploit his desire for instant gratification even as they help him to commit for the future without banking savings decisions and welfare are not monotonic in the degree of time inconsistency consequently commitment savings will lower welfare for moderately time inconsistent agents if loan contracts are enforceable pure commitment savings will disappear this will further lower welfare if the lender is a profit maximizing bank but raise welfare if the lender is a welfare maximizing ngo finally i consider the coexistence of a bank and ngo there will be zero takeup of ngo provided commitment savings if there is competition from a moneylender but the ngo s offer will raise the agent s reservation utility thus reducing the surplus that can be extracted by the moneylender

neuroeconomic studies of impulsivity now or just as soon as possible existing behavioral studies of intertemporal choice suggest that both human and animal choosers are impulsive one possible explanation for this is that they discount future gains in a hyperbolic or quasi hyperbolic fashion david i laibson 1997 shane frederick george loewenstein and ted o donoghue 2002 this observation stands in contrast to standard normative theory which predicts exponential discounting for any single maximizing agent robert h strotz 1956 this disparity between empirical and normative approaches is typically explained by proposing that human choosers suffer from inner conflict balancing an impulse for an immediate gratification against other forces calling for delayed gratification richard h thaler and h m shefrin 1981 laibson 1997 drew fudenberg and david k levine 2006 jess benhabib and alberto bisin 2005 b douglas bernheim and antonio rangel 2004 faruk gul and wolfgang pesendorfer 2001 we hoped to better understand both the behavioral and algorithmic roots of this phenomenon by conducting a series of behavioral and neurobiological experiments on intertemporal choice the results of our behavioral experiments deviate significantly from the predictions of both normative and inner conflict models the results of our neurobiological experiments provide new algorithmic insights into the mechanisms of intertemporal choice decision theory new methods new insights

temporal risk and the nature of induced preferences abstract it has been known since the work of h markowitz portfolio selection efficient diversification of investments yale univ press 1959 and j mossin amer econ rev 59 1969 172 174 that even an individual whose underlying preferences satisfy the von neumann morgenstern axioms will not choose over delayed i e temporal risky prospects in a manner which can be modelled as expected utility maximizing since most economically important instances of risk taking insurance real investment agriculture career training involve delayed as opposed to immediately resolved risk the standard use of expected utility theory to model such decisions must be questioned in this paper the technique of generalized expected utility analysis m j machina econometrica 50 1982 277 323 and the theory of support functions r t rockafellar convex analysis princeton univ press 1970 are applied to exactly model and hence determine the nature of preferences over temporal risky prospects

your loss is my gain a recruitment experiment with framed incentives empirically labor contracts that financially penalize failure induce higher effort provision than economically identical contracts presented as paying a bonus for success an effect attributed to loss aversion this is puzzling as penalties are infrequently used in practice the most obvious explanation is selection loss averse agents are unwilling to accept such contracts i formalize this intuition then run an experiment to test it surprisingly i find that workers were 25 percent more likely to accept penalty contracts with no evidence of adverse or advantageous selection consistent with the existing literature penalty contracts also increased performance on the job by 0 2 standard deviations i outline extensions to the basic theory that are consistent with the main results but argue that more research is needed on the long term effects of penalty contracts if we want to understand why firms seem unwilling to use them