First, firms price investment goods below marginal cost. Second, firms price leisure goods above marginal cost. In both cases, firms deviate from marginal cost pricing to provide a commitment device and to respond to the overconfidence about future consumption. Third, in contracts with automatic renewal, firms charge higher per-unit prices and additional fees after renewal, and make contract cancellation costly. The latter features respond to the consumer underestimation of the renewal probability.
More impatient workers search less intensively but also accept lower wages.
If agents have hyperbolic preferences, the search effect dominates, so increases in impatience lead to lower exit rates from unemployment. Using two large longitudinal data sets, we find that various measures of impatience are negatively correlated with the exit rate from unemployment, contrary to the predictions of the exponential discounting model. The empirical results support the hyperbolic model. Therefore, they exhibit a dual risk attitude which is reference dependent. This paper considers an adaptive process for choice under risk such that, in spite of a permanent short-run dual risk attitude, the agent eventually learns to make risk neutral choices.