Time inconsistency

Welcome to the ninth episode of our Behavioral Economics course. Building on our understanding of how psychological factors influence decision-making, from prospect theory and loss aversion to heuristics, anchoring, confirmation bias, nudge theory, and social preferences, we now delve into 'Time Inconsistency.' This episode explores the fascinating phenomenon where our preferences change over time, leading to inconsistencies between our planned actions and our actual behavior. We'll examine why we often prioritize immediate gratification over long-term goals, and the implications this has for saving, dieting, procrastination, and many other aspects of life. Discover strategies to overcome time inconsistency and make choices that align with your long-term well-being.

Check your understanding

These are the same multiple-choice questions you will see in the Quiz section after you listen to the episode. Use them here to preview or review the answers.

What is time inconsistency in behavioral economics?

  1. The tendency for people to be consistently late.
  2. The tendency for preferences to change over time, leading to inconsistencies between plans and actions.
  3. The belief that time moves faster as we get older.
  4. The difficulty in accurately estimating the duration of tasks.
  5. Making plans that are too ambitious for the amount of time available.

What is hyperbolic discounting?

  1. A constant rate of discounting the value of future rewards.
  2. A more rapid decrease in the value of rewards for short delays compared to longer delays.
  3. Discounting the value of past experiences.
  4. A method for accurately calculating interest rates.
  5. Ignoring the value of future rewards completely.

Which of the following is an example of a commitment device?

  1. Setting up automatic savings deductions from your paycheck.
  2. Visualizing the benefits of achieving a long-term goal.
  3. Breaking down a large task into smaller steps.
  4. Telling yourself that you will start a diet 'someday'.
  5. Rewarding yourself with a treat every time you complete a small task.

How does time inconsistency relate to procrastination?

  1. Time inconsistency makes procrastination less likely.
  2. Time inconsistency has no impact on procrastination.
  3. Time inconsistency can explain why we delay tasks, prioritizing immediate gratification over long-term goals.
  4. Procrastination is solely caused by laziness.
  5. Procrastination is always beneficial in the long run.

How can making future rewards more salient help overcome time inconsistency?

  1. It makes the future rewards seem less important.
  2. It makes the long-term goals feel less distant and more attainable.
  3. It increases the rate of hyperbolic discounting.
  4. It encourages impulsive behavior.
  5. It eliminates the need for commitment devices.

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