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The Demand for Commitment Devices

Paper Session

Saturday, Jan. 6, 2018 10:15 AM - 12:15 PM

Pennsylvania Convention Center, 201-B
Hosted By: American Economic Association
  • Chair: Douglas Bernheim, Stanford University

Loose Knots: Strong Versus Weak Commitments to Save for Education in Uganda

Dean Karlan
Yale University
Leigh Linden
University of Texas-Austin


Commitment devices offer an opportunity to restrict future choices. However, strict commitments may deter participation. Using a school-based commitment savings program for educational expenses in Uganda, we compare an account fully-committed to educational expenses to an account with a weaker commitment (funds withdrawn in cash, rather than a voucher). The weaker commitment generates higher account savings, and when combined with a parental outreach generates higher educational supplies expenditures and 0.11 standard deviation higher math and language test scores. We find no effect from the fully-committed account, and no effect for either account on attendance, enrollment, or non-cognitive skills.

Myopia and Discounting

Xavier Gabaix
Harvard University
David Laibson
Harvard University


We assume that perfectly patient agents estimate the value of future events by generating noisy,
unbiased simulations and combining those signals with priors to form posteriors. These posterior
expectations exhibit as-if discounting: agents make choices as if they were maximizing a stream
of known utils weighted by a discount function, D(t). This as-if discount function reflects the fact
that estimated utils are a combination of signals and priors, so average expectations are optimally
shaded toward the mean of the prior distribution, generating behavior that partially mimics the
properties of classical time preferences. When the simulation noise has variance that is linear in
the event's horizon, the as-if discount function is hyperbolic, D(t)=1/(1+at). Our agents exhibit
systematic preference reversals, but have no taste for commitment because they suffer from
imperfect foresight, which is not a self-control problem. In our framework, agents that are more
skilled at forecasting (e.g., those with more intelligence) exhibit less discounting. Agents with
more domain-relevant experience exhibit less discounting. Older agents exhibit less discounting
(except those with cognitive decline). Agents who are encouraged to spend more time thinking
about an intertemporal tradeoff exhibit less discounting. Agents who are unable to think carefully
about an intertemporal tradeoff – e.g., due to cognitive load – exhibit more discounting. In our
framework, patience is highly unstable, fluctuating with the accuracy of forecasting

Impulsive Consumption and Financial Wellbeing: Evidence From an Expansion in the Supply of Alcohol

Itzhak Ben-David
Ohio State University
Marieke Bos
Stockholm School of Economics and Swedish House of Finance


Increasing the supply of temptation goods might harm individuals if they have time-inconsistent preferences and consume more of these goods in the present at the expense of their future consumption plan. We test this hypothesis by studying the credit behavior of low-income Swedish households around the expansion of the opening hours of retail liquor stores in some counties. Consistent with the theory, the expansion in opening hours led to an increase in the take-up rate and balances of consumer credit (mainstream and pawn credit). Furthermore, default rate increased in treated populations. Thus, our results show that inconsistent-time preferences reinforce the conditions of poverty through borrowing and default.

Spatial Commitment Devices and Addictive Goods: Evidence from the Removal of Slot Machines from Bars

Vyacheslav Mikhed
Federal Reserve Bank of Philadelphia
Barry Scholnick
University of Alberta
Hyungsuk Byun
Government of Alberta


Commitment device theory suggests that temptations to consume addictive goods could be reduced by the regulatory removal of geographically close environmental cues. We provide new evidence on this hypothesis using a quasi-natural experiment, in which gambling regulators removed slot machines from some, but not all, neighborhood bars. We find that the removal of slot machines reduced personal bankruptcies of close neighbors (within 100 meters) but not neighbors slightly farther away. This is consistent with the removal of neighborhood slots serving as an effective spatial commitment device, which reduced close neighbors' temptation to gamble, thus allowing them to avoid bankruptcy.
Emily Breza
Harvard University
Frank Schilbach
Massachusetts Institute of Technology
Bruce Carlin
University of California-Los Angeles
Brigitte Madrian
Harvard University
JEL Classifications
  • D3 - Distribution
  • D1 - Household Behavior and Family Economics