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  3. 2025
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  5. Behavioral Economics: Biased Self Perception, Imperfect Memory, and Impatience
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Behavioral Economics: Biased Self Perception, Imperfect Memory, and Impatience

Paper Session

Saturday, Jan. 4, 2025 2:30 PM - 4:30 PM (PST)

Hilton San Francisco Union Square, Golden Gate 6
Hosted By: American Economic Association
  • Chair: Mariana Carrera, Montana State University and NBER

Biased Memory and Perceptions of Self-Control

Afras Y. Sial
,
University of California-Berkeley
Justin R. Sydnor
,
University of Wisconsin-Madison and NBER
Dmitry Taubinsky
,
University of California-Berkeley and NBER

Abstract

Using data from a field experiment on exercise, we analyze the relationship between imperfect memory
and people’s awareness of their limited self-control. In a theoretical model of belief-updating, we show that incorrect beliefs about self-control problems can persist in the presence of memory decay despite repeated opportunities for learning. We empirically confirm the assumptions and predictions of the model, finding that people exhibit memory decay and overestimate past gym attendance, and that larger overestimation of past attendance is associated with (i) more overestimation of future attendance, (ii) a lower willingness to pay to motivate higher future gym attendance, and (iii) a smaller gap between goal and forecasted attendance. We organize these facts with a structural model of quasi-hyperbolic discounting and naiveté, estimating that people with more biased memories are more naive about their time inconsistency, but not more time-inconsistent.

Self-Confidence and Motivated Memory Loss: Evidence From Schools

Vivek Roy-Chowdhury
,
University of Cambridge

Abstract

We use field data on teenagers' memories of mathematics grades to provide novel evidence on the dynamic relationship between biased recall and beliefs. Recall of grades is strongly positively biased and becomes more biased when more time has passed since the relevant report card, supporting theories of motivated beliefs and memory loss. Students are also more likely to overconfidently predict their next grade in periods where they recall an incorrectly high grade. We estimate a structural model which finds support for the two-way relationship between beliefs and recall proposed by Kőszegi et al. (2022). Beliefs about ability are sticky: a single bad quarterly grade in mathematics negatively affects academic self-esteem for 2-3 years. Our model also reveals substantial heterogeneity across students: high achievers have disproportionately strong preferences for positively biased recall, making their self-esteem much more resilient to unfavourable grades. Simulations suggest informational interventions can harm welfare and possibly widen attainment gaps if not coupled with measures to protect self-esteem, especially for low achievers.

Biased Expectations, Memory and Overconfidence in Higher Education

Mariana Carrera
,
Montana State University and NBER
Andrew Hill
,
Montana State University
Trevor Vogel
,
Meijer

Abstract

At universities where graduation rates are low, first-year courses offer opportunities for students to update beliefs about their chances of successful degree completion. We explore the dynamics of students' expectations, memory, and overconfidence in a large introductory course with weekly assignments. We compare students’ beliefs about their own chances of attaining future outcomes against their beliefs regarding other students with a given past performance history. In the case of homework completion, we find that students have accurate beliefs of how past actions correlate with future actions, but believe they have a higher probability of recovering from past missteps than other students. We also document memory decay over time, but even accounting for this, students perceive their chances of better outcomes as significantly higher than those of other similar students. We break down biased expectations about downstream outcomes such as passing the course, attaining an A, and graduating into portions explained by overconfidence, biased memory, and an information gap regarding the general prevalence of those outcomes.

Designing Incentives for Impatient People: An RCT Promoting Exercise to Manage Diabetes

Shilpa Aggarwal
,
Indian School of Business
Rebecca Dizon-Ross
,
University of Chicago and NBER
Ariel Zucker
,
University of California-Santa Cruz

Abstract

Many people are impatient. We develop a prediction for how to make incentives work particularly well when people are impatient over effort: implement “time-bundled” contracts that make the payment for future effort increase in current effort. We test and find empirical support for this prediction using a randomized evaluation of an incentive program for exercise (walking) among diabetics in India. On average, time-bundled contracts generate as much effort as linear contracts, yet at a reduced cost. Moreover, time-bundled contracts perform meaningfully better among individuals with greater impatience over effort, suggesting that impatience is a contributing mechanism. In contrast, increasing the frequency of payment – which should be effective if individuals are impatient over payment rather than effort – has no effort, suggesting limited impatience over payments. Overall, the incentive program is effort, increasing daily steps by roughly 20 percent (13 minutes of brisk walking) and improving health.

Discussant(s)
Tristan Gagnon-Bartsch
,
University of Iowa
David Huffman
,
University of Pittsburgh
Andy Brownback
,
University of Arkansas
Mattie Toma
,
University of Warwick
JEL Classifications
  • D9 - Micro-Based Behavioral Economics