The tendency to overestimate immediate utility is a common cognitive bias. As a result people behave inconsistently over time and fail to reach long-term goals. Behavioral economics tries to help affected individuals by implementing external incentives. However, designing robust incentives is often difficult due to imperfect knowledge of the parameter @math quantifying a person's present bias. Using the graphical model of Kleinberg and Oren, we approach this problem from an algorithmic perspective. Based on the assumption that the only information about @math is its membership in some set @math , we distinguish between two models of uncertainty: one in which @math is fixed and one in which it varies over time. As our main result we show that the conceptual loss of efficiency incurred by incentives in the form of penalty fees is at most @math in the former and @math in the latter model. We also give asymptotically matching lower bounds and approximation algorithms.
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.  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 â€œtoo muchâ€ liquidity.