Although the rational-choice model used by economists has yielded an impressive array of insights across a broad range of human activities, research from psychology suggests that it is inaccurate in some systematic and important ways. The investigators will continue their agenda of integrating psychologically more realistic assumptions about human behavior into formal economic models, to modify and improve economic theory in those areas where it is most importantly inaccurate.
This award funds research exploring the implications of self-control problems for the interplay between what consumers buy and when they buy it. The intellectual merit of the proposed research is that it helps to further delineate the implications of basic lessons from psychology for basic economics. Indeed, the investigators revisit a core domain of economic behavior - consumer choice under budget constraints - with one of the simplest and most successful models from the emerging behavioral-economics literature - selfcontrol problems modeled as a time-inconsistent taste for immediate gratification. The analysis of consumer choice is both a good place to empirically identify the nature of people's self-control problems, and a realm where self-control problems might have some of their most profound effects.
The research has two main thrusts. The first studies the relationship between prices, quantity purchased, and timing of purchases for unhealthy goods. In particular, self-control problems can lead to responses to non-linear prices or price variation that would not arise for those without self-control problems. For instance, consumers who don't fully anticipate their future selfcontrol problems may take insufficient advantage of low prices or bulk purchasing, and hence end up spending more than necessary for their purchases.
The second thrust concerns the relationship between the timing of total consumptions expenditures and the composition of that spending. Goods differ in terms of when they deliver utility. Some goods, such as restaurant meals and entertainment, deliver mostly short-term pleasure. Other goods, such as TVs, bicycles, and other durables, deliver both short-term and long-term pleasure. And many goods have consequences beyond the direct pleasure from consumption. For instance, potato chips, soda, or other unhealthy goods can create negative future consequences, while exercise, investment in cultural skills, and social networking can create positive future consequences.
The investigators show how the exact timing of when goods deliver pleasure and pain is far more important for people with self-control problems than those without, and how the availability and preferences regarding these different types of goods can dramatically change both the behavioral and welfare implications of self-control problems for the timing of consumption. The investigators intend to study how the common worry by economists about distortions in a person's overall spending and savings ought be supplemented or modified in light of concerns about what bundles of goods are being purchased.
In fact, among the broader impacts of this research is that it can help move economics to more realistic analysis of policies designed to address savings behavior, credit-card borrowing, overconsumption of unhealthy goods, obesity, and similar phenomena. While the research itself is preliminary and theoretical, the investigators hope that by combining the many insights of rational choice economics with the acknowledgment that people might have limits to their self-control, this research will improve the contribution economics can make to policy analysis in these areas. 1
