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THE ECONOMICS OF IMMEDIATE GRATIFICATION
Ted O'Donoghue
Department of Economics
Cornell University
and
Matthew Rabin
Department of Economics
University of California, Berkeley
Abstract: People have self-control problems: We pursue immediate gratification in a way that we ourselves do not appreciate in the long run. Only recently have economists begun to focus on the behavioral and welfare implications of such time-inconsistent preferences. This paper outlines a simple formal model of self-control problems, applies this model to some specific economic applications, and discusses some general lessons and open questions in the economic analysis of immediate gratification. We emphasize the importance of the timing of the rewards and costs of an activity, as well as a person's awareness of future self-control problems. We identify situations where knowing about self-control problems helps a person and situations where it hurts her, and also identify situations where even mild self-control problems can severely damage a person. In the process, we describe specific implications of self-control problems for addiction, incentive theory, and consumer choice and marketing.
Keywords: Hyperbolic Discounting, Immediate Gratification, Procrastination, Self Control, Time Inconsistency.
JEL Classifications: A12, B49, C70, D11, D60, D74, D91, E21
THE ECONOMICS OF IMMEDIATE GRATIFICATION
Ted O'Donoghue
Department of Economics
Cornell University
and
Matthew Rabin
Department of Economics
University of California, Berkeley
Abstract: People have self-control problems: We pursue immediate gratification in a way that we ourselves do not appreciate in the long run. Only recently have economists begun to focus on the behavioral and welfare implications of such time-inconsistent preferences. This paper outlines a simple formal model of self-control problems, applies this model to some specific economic applications, and discusses some general lessons and open questions in the economic analysis of immediate gratification. We emphasize the importance of the timing of the rewards and costs of an activity, as well as a person's awareness of future self-control problems. We identify situations where knowing about self-control problems helps a person and situations where it hurts her, and also identify situations where even mild self-control problems can severely damage a person. In the process, we describe specific implications of self-control problems for addiction, incentive theory, and consumer choice and marketing.
Keywords: Hyperbolic Discounting, Immediate Gratification, Procrastination, Self Control, Time Inconsistency.
JEL Classifications: A12, B49, C70, D11, D60, D74, D91, E21