WELFARE AND POLICY IMPLICATIONS
Implications: individuals are likely to be happier with defaults set to higher savings rates ; cautious paternalism: policy that allows for defaults to be set at automatic enrollment helps substantially individuals with self-control problems while inflicting little or no harm on individuals without self-control problems
On the other hand other commitment devices that consumers cannot opt out of (social security) has potential to hurt consumers with no self control problems
Ausubel’s interpretation of this result is that individuals (naively) believe that they will not borrow much on a credit card, past the teaser period. These findings are consistent with underestimation of future consumption for leisure goods,
NAIVE AGENTS ARE INCORRECTLY CONVINCED THAT IF THEY DO NOT DO THE ACTIVITY TODAY, THEY WILL DO IT TOMORROW ; THEY NEVER END UP DOING IT.
IS DEADLINE SETTING OPTIMAL?
Deadline setting: sets demand for commitment
The first result is that self-set deadlines indeed improve performance:
the first treatment group does significantly better than the control group, detecting 50 percent more errors (on average, 105 versus
70) and earning substantially more as a result (on average, $13 versus $5).The second result is that the deadline setting is not optimal: the group with equal-spaced deadlines does significantly better than the other groups, on average detecting 130 errors and earning $20. This provides evidence of partial naiveté about the self-control problems.
Answer: no? But previously set deadlines (as opposed to self-imposed deadlines) are more effective
Economic theory assumes people are “rational agents”’; time-consistent
In lab: individuals are time-inconsistent, show a concern for the welfare of others, attitude towards risks depends on framing and reference points
Violation of rational expectations ; overestimation of skill ; overprotection from current state
Individuals deviate from the standard model in three respects:
1) nonstandard preferences (time preferences, self control problems, risk preferences, reference dependence, and social preferences)
2) nonstandard beliefs (overconfidence, law of small numbers, projection bias)
3) nonstandard decision making (framing, limited attention, menu effects, persuasion and social pressure, emotions)