Smoking Cessation: A Model of Planned vs. Actual Behavior for Time-Inconsistent Consumers
TL;DR: In this article, a simple model of intertemporal choice is proposed to characterize how planned versus actual behaviors evolve for time-inconsistent smokers, and the authors suggest that smokers' participation and cessation decisions are governed by the interplay between three effects.
Abstract: We offer a simple model of intertemporal choice to characterize how planned versus actual behaviors evolve for time-inconsistent smokers. Our results suggest that smokers' participation and cessation decisions are governed by the interplay between three effects. The cessation effect leads smokers to advance their plans to quit smoking, whereas the procrastination effect leads them to consecutively revise their planned quitting age upwards. Consequently, the duration of smoking is effectively governed by which one of these two effects is dominant. Finally, for certain consumer segments, a threshold effect causes an “all or nothing” type of extreme smoking behavior based on certain critical values of present-biased preferences. Our results provide some preliminary evidence that both marketing efforts by tobacco firms and public policy initiatives can have a significant influence on smoking behavior. In particular, we find that reductions in the age at which individuals start smoking may not only vastly extend their duration of smoking, but also convert potential “never smokers” into lifetime smokers. Finally, we estimate a hazard model using survey data from over 800 smokers to provide evidence in support of our theoretical model.
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TL;DR: The literature on hyperbolic discounting is used to model consumers' self-control problems and conditions under which firms will offer small packages to help consumers combat theirSelf-control problem and how this offering in turn affects prices, profits, consumer, and social welfare are examined.
Abstract: Consumers are often unable to resist the temptation of overconsuming certain products such as cookies, crackers, soft drinks, alcohol, etc. To control their consumption, some consumers buy small packages or abstain from purchasing the product altogether. Other consumers, however, still purchase large packages and overconsume. From a strategic perspective, firms have the option of introducing small packages or only offering large packages. We use the literature on hyperbolic discounting to model consumers' self-control problems and examine conditions under which firms will offer small packages to help consumers combat their self-control problem, and how this offering in turn affects prices, profits, consumer, and social welfare. Our results show that introducing small packages can increase firms' profits only when a small fraction of consumers have overconsumption problems or when small packages can bring in new customers. Additionally, we find that competition can sometimes reduce the incentives for firms to introduce small packages. This is particularly true when a large fraction of consumers is attracted to small packages. We also find that firms' profits can sometimes decrease if they produce healthier alternatives of their goods. Our analysis of consumer welfare reveals that small packages enhance consumer and social welfare, even though they sometimes increase the consumption of vice goods.
54 citations
Cites methods from "Smoking Cessation: A Model of Plann..."
...This approach is widely used to model self-control problems (e.g., Laibson 1997, O’Donoghue and Rabin 1999, Carrillo and Mariotti 2000, DellaVigna and Malmendier 2004, Machado and Sinha 2007, Gilpatric 2009).11 In particular, the discount function is given by D4 5=...
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Posted Content•
TL;DR: The inconsistency of time preferences has wider implications, especially for criminal law as mentioned in this paper, and it has significant implications for the general deterrence of crime, as demonstrated by this article, which highlights the importance of timing arrests closer to the commission of a crime and suggests overlooked benefits from undercover operations.
Abstract: Although “present bias” (or weakness of will, impulsiveness, myopia, or bounded willpower) was flagged as an issue for legal examination by Tom Ulen and Russell Korobkin over a decade ago, the concept has received insufficient attention in the legal field - and most of that attention has focused on its implications for the regulation of credit and savings. But, as demonstrated by this Article, the inconsistency of time preferences has wider implications, especially for criminal law. First, present bias may have significant implications for the general deterrence of crime. Individuals with time-inconsistent preferences may give in to immediate temptations to offend, even though they will not plan to exploit more distant opportunities to offend. To create additional deterrence by exploiting the present bias, one must either make the deferred costs of crime immediate or make the immediate benefits of crime deferred. For this reason, present bias heightens the importance of timing arrests closer to the commission of a crime - which suggests overlooked benefits from undercover operations. It also increases the efficiency of private crime prevention when these measures pose costs that occur contemporaneously with the benefits of crime. Second, present bias explains addiction, otherwise puzzling conditions of probation and parole, and the self-control mechanisms for dealing with addiction and tempting criminal behavior. Preventative measures, whether imposed by the state as a condition of probation and parole or imposed by the potential offender through “self-exclusion,” work by preventing an individual from having the opportunity to succumb to temptation.
52 citations
TL;DR: The results suggest that firms can mitigate self-control problems by delaying payment to the employees and find that multiperiod quota plans may be optimal despite the fact that they encourage more procrastination.
Abstract: It is well known that individuals often fail to exert proper self-control. In organizational settings, this can lead to reduced productivity and profits. We use the literature on present-biased preferences to model employees' self-control problems and examine how firms can design compensation plans to reduce the negative consequences of their employees' self-control problems. Our results suggest that firms can mitigate self-control problems by delaying payment to the employees. This can be achieved by using multiperiod quotas (such as annual quotas) to compensate employees for their cumulative performance. Although such plans are prevalent in the market, there is little theoretical research that shows when multiperiod quota plans can be optimal. The paper provides one potential explanation for the widespread use of such quota plans. Interestingly, we find that such plans may be optimal despite the fact that they encourage more procrastination. We also find that such plans lead to higher effort by the employees and can sometimes improve the welfare of not only the firm but also the employees.
44 citations
Cites background or methods from "Smoking Cessation: A Model of Plann..."
...Our work is related to the growing literature that has used present-biased preferences to model self-control problems (e.g., Laibson 1997, Gruber and Köszegi 2001, Machado and Sinha 2007, Jain 2012)....
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...Failure to exert proper self-control can lead to various undesirable outcomes such as poor health, insufficient savings, addiction, poor productivity, and lost profits (e.g., Gruber and Köszegi 2001, O’Donoghue and Rabin 2000, Laibson 1997, Renn et al. 2011)....
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TL;DR: A dynamic model of rational addiction and endogenous consumption is constructed to investigate how consumers respond to policy interventions that aim to reduce purchases of cigarettes, and it is found that the category elasticity is about 35% higher when the model correctly accounts for addiction.
Abstract: Addiction creates an intertemporal link between a consumer's past and present decisions, altering their responsiveness to price changes relative to nonaddictive products. We construct a dynamic model of rational addiction and endogenous consumption to investigate how consumers respond to policy interventions that aim to reduce purchases of cigarettes. We find that, on average, the category elasticity is about 35% higher when the model correctly accounts for addiction. However, some policies spur substitution from more expensive single packs to less expensive cartons of cigarettes, resulting in higher overall consumption for some consumers.
43 citations
TL;DR: A parsimonious framework that examines how goals can help performance and how to set optimal goals is developed and it is found that it is sometimes optimal to set goals that are never achieved.
Abstract: Consumers set goals to achieve a variety of objectives such as losing weight, saving for retirement, and achieving better health. A large body of literature in psychology and consumer behavior shows that goals can help consumers achieve these objectives. However, there is almost no research that examines how we should set optimal goals. The purpose of this paper is to develop a parsimonious framework that examines how goals can help performance and how we should set optimal goals. We use the literature on hyperbolic discounting to model these issues. Our results show that goals can often increase performance but can also sometimes encourage procrastination. We show that some goals are worse than having no goals, even when the goals are achieved and the consumer exerts more effort because of the goal. We also find that the presence of goals can lead to myopic consumers behaving as if they were hyperopic. Our results also show that the most difficult goals should be assigned to consumers with moderate levels of motivation and self-control problems. We also find that it is sometimes optimal to set goals that are never achieved.
40 citations
Cites background or methods from "Smoking Cessation: A Model of Plann..."
...Machado and Sinha (2007) examine how time-inconsistent preferences can affect the time when a smoker plans to quit and when he actually does....
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...…tries to incorporate psychological and sociological realism into economic models (see, for example, Carpenter and Nakamoto 1990; Wernerfelt 1995; Becker and Murphy 2000; Rabin 2002; Wu et al. 2004; Amaldoss and Jain 2005, 2008; Machado and Sinha 2007; Syam et al. 2008; Kuksov and Villas-Boas 2008)....
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...…has been used to study procrastination (see, for example, Fischer 2001; O’Donoghue and Rabin 1999, 2001), addiction (Gruber and Koszegi 2001, O’Donoghue and Rabin 2000, Machado and Sinha 2007), strategic ignorance (e.g., Carrillo and Mariotti 2000), and investment behavior (Laibson 1997, 1998)....
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...Published online in Articles in Advance June 19, 2009....
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References
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TL;DR: The authors analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology: an illiquid asset whose sale must be initiated one period before the sale proceeds are received.
Abstract: Hyperbolic discount functions induce dynamically inconsistent preferences, implying a motive for consumers to constrain their own future choices. This paper analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology: an illiquid asset whose sale must be initiated one period before the sale proceeds are received. The model predicts that consumption tracks income, and the model explains why consumers have asset-specific marginal propensities to consume. The model suggests that financial innovation may have caused the ongoing decline in U. S. savings rates, since financial innovation in- creases liquidity, eliminating commitment opportunities. Finally, the model implies that financial market innovation may reduce welfare by providing âtoo muchâ liquidity.
5,587 citations
Book•
01 Mar 1989
TL;DR: Mitchell and Carson as discussed by the authors argue that at this time the contingent valuation (CV) method offers the most promising approach for determining public willingness to pay for many public goods, an approach likely to succeed, if used carefully, where other methods may fail.
Abstract: Economists and others have long believed that by balancing the costs of such public goods as air quality and wilderness areas against their benefits, informed policy choices can be made. But the problem of putting a dollar value on cleaner air or water and other goods not sold in the marketplace has been a major stumbling block. Mitchell and Carson, for reasons presented in this book, argue that at this time the contingent valuation (CV) method offers the most promising approach for determining public willingness to pay for many public goods---an approach likely to succeed, if used carefully, where other methods may fail. The result of ten years of research by the authors aimed at assessing how surveys might best be used to value public goods validly and reliably, this book makes a major contribution to what constitutes best practice in CV surveys.
Mitchell and Carson begin by introducing the contingent valuation method, describing how it works and the nature of the benefits it can be used to measure, comparing it to other methods for measuring benefits, and examining the data-gathering technique on which it is based---survey research. Placing contingent valuation in the larger context of welfare theory, the authors examine how the CV method impels a deeper understanding of willingness-to-pay versus willingness-to-accept compensation measures, the possibility of existence values for public goods, the role of uncertainty in benefit valuation, and the question of whether a consumer goods market or a political goods market (referenda) should be emulated. In developing a CV methodology, the authors deal with issues of broader significance to survey research. Their model of respondent error is relevant to current efforts to frame a theory of response behavior and bias typology will interest those considering the cognitive aspects of answering survey questions.
Mitchell and Carson conclude that the contingent valuation method can obtain valid valuation information on public goods, but only if the method is applied in a way that addresses the potential sources of error and bias. They end their book by providing guidelines for CV practitioners, a list of questions that should be asked by any decision maker who wishes to use the findings of a CV study, and suggestions for new applications of contingent valuation. Additional features include a comprehensive bibliography of the CV literature and an appendix summarizing more than 100 CV studies.
5,546 citations
TL;DR: In this paper, the authors discuss the discounted utility (DU) model, its historical development, underlying assumptions, and "anomalies" -the empirical regularities that are inconsistent with its theoretical predictions.
Abstract: This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.
5,242 citations
TL;DR: In this article, the authors present a problem which has not heretofore been analysed and provide a theory to explain, under different circumstances, three related phenomena: (1) spendthriftiness; (2) the deliberate regimenting of one's future economic behaviour, even at a cost; and (3) thrift.
Abstract: This paper presents a problem which I believe has not heretofore been analysed2 and provides a theory to explain, under different circumstances, three related phenomena: (1) spendthriftiness; (2) the deliberate regimenting of one’s future economic behaviour— even at a cost; and (3) thrift. The senses in which we deal with these topics can probably not be very well understood, however, until after the paper has been read; but a few sentences at this point may shed some light on what we are up to.
3,427 citations
"Smoking Cessation: A Model of Plann..." refers background in this paper
...smoking and (b) the threshold effect makes it less likely 2 Although an early analysis of time-inconsistent discounting can be found in Strotz (1955)....
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