Memory and Procrastination

MemoryForWeb

I have two papers examining limited memory.  Most recently:

 On the Interaction of Memory and Procrastination: Implications for Reminders 

Abstract: I examine the interaction between present-bias and limited memory. Individuals in the model must choose when and whether to complete a task, but may forget or procrastinate. Present-bias expands the effect of memory: it induces delay and limits take-up of reminders. Cheap reminder technology can bound the cost of limited memory for time-consistent individuals but not for present-biased individuals, who procrastinate on setting up reminders. Moreover, while improving memory increases welfare for time-consistent individuals, it may harm present-biased individuals because limited memory can function as a commitment device. Thus, present-biased individuals may be better off with reminders that are unanticipated. Finally, I show how to optimally time the delivery of reminders to present-biased individuals.

Forthcoming, Journal of the European Economic Association. Latest version here, with results on empirical estimation. Older version: NBER Working Paper 20381

This paper built on my previous work on memory, showing that people are overconfident about the probability they will remember:

Forgetting We Forget: Overconfidence and Memory

Abstract:  Do individuals have unbiased beliefs, or are they over- or underconfident? Overconfident individuals may fail to prepare optimally for the future, and economists who infer preferences from behavior under the assumption of unbiased beliefs will make mistaken inferences. This paper documents overconfidence in a new domain, prospective memory, using an experimental design that is more robust to potential confounds than previous research. Subjects chose between smaller automatic payments and larger payments they had to remember to claim at a six-month delay. In a large sample of college and MBA students at two different universities, subjects make choices that imply a forecast of a 76% claim rate, but only 53% of subjects actually claimed the payment.

Published 2011 in the Journal of the European Economic Association; Ungated working paper available at SSRN.

Press Coverage:

 

Memory and Procrastination

Memory and Procrastination

MemoryForWeb

I have two papers examining limited memory.  Most recently:

 On the Interaction of Memory and Procrastination: Implications for Reminders 

Abstract: I examine the interaction between present-bias and limited memory. Individuals in the model must choose when and whether to complete a task, but may forget or procrastinate. Present-bias expands the effect of memory: it induces delay and limits take-up of reminders. Cheap reminder technology can bound the cost of limited memory for time-consistent individuals but not for present-biased individuals, who procrastinate on setting up reminders. Moreover, while improving memory increases welfare for time-consistent individuals, it may harm present-biased individuals because limited memory can function as a commitment device. Thus, present-biased individuals may be better off with reminders that are unanticipated. Finally, I show how to optimally time the delivery of reminders to present-biased individuals.

Forthcoming, Journal of the European Economic Association. Latest version here, with results on empirical estimation. Older version: NBER Working Paper 20381

This paper built on my previous work on memory, showing that people are overconfidence about the probability they will remember:

Forgetting We Forget: Overconfidence and Memory

Abstract:  Do individuals have unbiased beliefs, or are they over- or underconfident? Overconfident individuals may fail to prepare optimally for the future, and economists who infer preferences from behavior under the assumption of unbiased beliefs will make mistaken inferences. This paper documents overconfidence in a new domain, prospective memory, using an experimental design that is more robust to potential confounds than previous research. Subjects chose between smaller automatic payments and larger payments they had to remember to claim at a six-month delay. In a large sample of college and MBA students at two different universities, subjects make choices that imply a forecast of a 76% claim rate, but only 53% of subjects actually claimed the payment.

Published 2011 in the Journal of the European Economic Association; Ungated working paper available at SSRN.

 

Press Coverage:

When Consumers Do Not Make an Active Decision: Dynamic Default Rules and their Equilibrium Effects

Dynamic Defaults

Dynamic defaults for recurring purchases determine what happens to consumers enrolled in a product or service who take no action at a decision point. Consumers may face automatic renewal, automatic switching, or non-purchase defaults. Privately optimal dynamic defaults depend on the contributions of adjustment costs versus psychological factors leading to inaction: both produce inertia under renewal defaults, but differ under non-renewal defaults. Defaults have equilibrium effects on pricing by changing the elasticity of repeat demand. Socially optimal defaults depend on firms’ pricing responses as well; more elastic repeat demand restrains price increases on repeat customers and can reduce inefficient switching.

(Latest draft here. Older: NBER Working Paper 20127).

 

See also discussion in The Incidental Economist.

 

 

When Consumers Do Not Make an Active Decision: Dynamic Default Rules and their Equilibrium Effects

When Consumers Do Not Make an Active Decision: Dynamic Default Rules and their Equilibrium Effects

Dynamic Defaults

Dynamic defaults for recurring purchases determine what happens to consumers enrolled in a product or service who take no action at a decision point. Consumers may face automatic renewal, automatic switching, or non-purchase defaults. Privately optimal dynamic defaults depend on the contributions of adjustment costs versus psychological factors leading to inaction: both produce inertia under renewal defaults, but differ under non-renewal defaults. Defaults have equilibrium effects on pricing by changing the elasticity of repeat demand. Socially optimal defaults depend on firms’ pricing responses as well; more elastic repeat demand restrains price increases on repeat customers and can reduce inefficient switching.

(Latest draft here. Older: NBER Working Paper 20127).

See also discussion in The Incidental Economist.

Invest-then-Harvest Pricing in Medicare Part D

Invest-then-Harvest Pricing in Medicare Part D

Individuals face switching frictions in many products, and insurance exchanges are no exception. In a paper published in the American Economic Journal: Economic Policy, I show that initial defaults have lasting effects in the Medicare Part D prescription drug insurance exchange. Since firms cannot commit to future prices, they should respond to inertia by raising prices on existing enrollees, while introducing cheaper alternative plans. I show that the market displays this pattern: older plans in this market are about 10% more expensive than comparable newly introduced plans.

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