Economic Theory and Experimental Seminar - Zachary Breig (The University of Queensland)

Title: Why do we procrastinate? Present bias and optimism

Abstract: If agents have optimistic beliefs about future time shocks, they will exhibit time-inconsistent choices over effort allocations that are observationally equivalent to those caused by β-δ preferences. Theory predicts these mechanisms can be distinguished by responses to information on past time-inconsistent choices: optimistic agents will change allocations but may not increase commitment demand, while β-δ agents will not change allocations but should increase commitment demand. We test these predictions experimentally. Information makes subjects less likely to be dynamically inconsistent in the future, consistent with optimism. It also increases subjects' demand for commitment, consistent with present bias. Among dynamically inconsistent subjects, roughly one quarter are driven by preferences, two fifths by beliefs, and one fifth by both preferences and beliefs. These results illustrate the importance of both beliefs and preferences to understanding dynamically inconsistent choices.