Self control

Question 1

Individuals often exhibit what kind of behaviour and how does this hold against standard theory?

Answer 1

Individuals can often exhibit systematic patterns of behaviour which are inconsistent with standard theory

Question 2

What is the formula for exponential discounting using delta?

Answer 2

The formula for exponential discounting using delta is u(Xt) + d(Xt+1) + d^2u(Xt+2)…

Question 3

What is time inconsistency?

Answer 3

Time inconsistency is when people do not show a preference of payments over time that is inconsistent with regards to discounting theory

Question 4

What is preference reversals?

Answer 4

A preference reversal is when subjects/agents can prefer one outcome at one time but prefer another at a different time.

Question 5

What is a present bias?

Answer 5

Present bias is when subjects appear to be more impatient in the short run than in the long run.

Question 6

When do we apply B (Beta) to an equation?

Answer 6

We apply B to an equation when the choice occurs in the future.

Question 7

What is a commitment device and why is it used?

Answer 7

A commitment device is a process used in order for someone to behave in their desired way and stick to a choice they’ve made, e.g. an alarm clock

Question 8

What are examples of commitment devices?

Answer 8

Examples of commitment devices include leaving alarm clocks on the other side of the bedroom, having a workout buddy

Question 9

What is Beta(hat)?

Answer 9

Beta hat is the level of conviction a person has in their own ability to stick to decisions

Question 10

What does B(hat) = B = 1, B(hat) < B and B(hat) > B mean?

Answer 10

If Bhat = B = 1, a person is perfectly integral and sticks to their choices and commitments
If Bhat > B then a person overestimates their ability to stick to their choices/ commitments
If Bhat < B then the person underestimates their ability to stick to their choices/commitments