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American Economic Review: Vol. 89 No. 1 (March 1999)

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Doing It Now or Later

Article Citation

O'Donoghue, Ted, and Matthew Rabin. 1999. "Doing It Now or Later." American Economic Review, 89(1): 103-124.

DOI: 10.1257/aer.89.1.103

Abstract

The authors examine self-control problems--modeled as time-inconsistent, present-biased preferences--in a model where a person must do an activity exactly once. They emphasize two distinctions: do activities involve immediate costs or immediate rewards, and are people sophisticated or naive about future self-control problems? Naive people procrastinate immediate-cost activities and preproperate--do too soon--immediate-reward activities. Sophistication mitigates procrastination but exacerbates preproperation. Moreover, with immediate costs, a small present bias can severely harm only naive people, whereas with immediate rewards it can severely harm only sophisticated people. Lessons for savings, addiction, and elsewhere are discussed.

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Authors

O'Donoghue, Ted (Cornell U)
Rabin, Matthew (U CA, Berkeley)

JEL Classifications

D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
D11: Consumer Economics: Theory


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